International Financial Reporting Standards and Earnings Quality: The Myth of Voluntary vs. Mandatory Adoption

CEFS Working Paper No. 2009-09

44 Pages Posted: 3 Jun 2009 Last revised: 5 Oct 2010

See all articles by Nina Günther

Nina Günther

Technische Universität München - Center for Entrepreneurial and Financial Studies

Bernhard Gegenfurtner

Technische Universität München (TUM)

Christoph Kaserer

Technische Universität München (TUM)

Ann‐Kristin Achleitner

Technische Universität München - Center for Entrepreneurial and Financial Studies

Date Written: June 2, 2009

Abstract

We revisit evidence whether incentives or IFRS drive earnings quality changes, analyzing a large sample of German firms in the period from 1998 to 2008. Consistent with previous studies we find that voluntary and mandatory adopters differ distinctively in terms of essential firm characteristics and that size, leverage, age, bank ownership and ownership concentration influenced the decision to voluntarily adopt IFRS. However, regardless of the decision to voluntarily adopt IFRS, we find that conditional conservatism increased under IFRS for both groups of adopters, while evidence does not suggest an increase in value relevance under IFRS. Results on earnings management in the post-adoption period are mixed. While income smoothing decreases for voluntary but not for mandatory adopters, discretionary accruals only decrease for mandatory but not for voluntary adopters. However, further analyses suggest that the capital market environment and the economic cycle during the adoption period seem to be a more powerful explanation for this evidence than voluntary or mandatory IFRS adoption. Therefore, we conclude that incentives to voluntarily adopt IFRS did not unambiguously dominate accounting standards in determining earnings quality in the case of German firms.

Keywords: IAS regulation, IFRS, corporate ownership structures, insider ownership, incentives, earnings quality

JEL Classification: G14, M41, M43, M44, M47

Suggested Citation

Günther, Nina and Gegenfurtner, Bernhard and Kaserer, Christoph and Achleitner, Ann-Kristin, International Financial Reporting Standards and Earnings Quality: The Myth of Voluntary vs. Mandatory Adoption (June 2, 2009). CEFS Working Paper No. 2009-09, Available at SSRN: https://ssrn.com/abstract=1413145 or http://dx.doi.org/10.2139/ssrn.1413145

Nina Günther (Contact Author)

Technische Universität München - Center for Entrepreneurial and Financial Studies ( email )

Arcisstr. 21
Munich, 80333
Germany
+49 89 289 25484 (Phone)

HOME PAGE: http://www.cefs.de

Bernhard Gegenfurtner

Technische Universität München (TUM) ( email )

Arcisstrasse 21
Munich, DE 80333
Germany
++49 89 289 25478 (Phone)
++49 89 289 25488 (Fax)

HOME PAGE: http://www.cefs.de

Christoph Kaserer

Technische Universität München (TUM) ( email )

Arcisstr. 21
Munich, D-80290
Germany
+49 89 289 25489 (Phone)
+49 89 289 25488 (Fax)

HOME PAGE: http://www.cefs.de

Ann-Kristin Achleitner

Technische Universität München - Center for Entrepreneurial and Financial Studies ( email )

Arcisstr. 21
Munich, D-80290
Germany
+49 89 289 25181 (Phone)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
1,261
Abstract Views
4,536
rank
16,966
PlumX Metrics