Analysis of Characteristics Motivating Firms’ IFRS Adoption: Evidence from the European Union

Abstract

We examine firm characteristics of early adoption of international financial reporting standards (IFRS) including company’s value, business complexity, corporate governance characteristics, and national levels of bureaucratic formalities in business. Because early adopters benefit from a positive network effect, they represent a driving force in harmonization and convergence. Therefore, we identify how a company’s characteristics impact its decision for early IFRS adoption. We test three groups of firms: those that adopted IFRS before the mandatory date; those that adopted IFRS on that date; and those that postponed IFRS adoption. We provide evidence, that firms’ business complexity, value, and choice of an auditor have a significant impact on early IFRS adoption. We also document that the extenuating effects of jurisdictions and national levels of bureaucratic formalities in business are factors that affect the decision to adopt IFRS.

Keywords: Accounting harmonization, firms’ value, business complexity, corporate governance

JEL Classification: M44, M41