Does Mandatory IFRS Adoption Facilitate Debt Financing?

Review of Accounting Studies, Forthcoming

INTACCT Working Paper No. MRTN-CT-2006-035850 INTACCT

62 Pages Posted: 20 Nov 2009 Last revised: 20 May 2015

See all articles by Annita Florou

Annita Florou

Queen Mary University of London

Urska Kosi

University of Paderborn; Vienna University of Economics and Business

Date Written: February 2015

Abstract

We examine whether the mandated introduction of International Financial Reporting Standards (IFRS) is associated with the propensity to access the public rather than private debt market and the cost of debt. We use a global sample of public bonds and private loans and find that mandatory IFRS adopters are more likely, post-IFRS, to issue bonds than to borrow privately. We also find that mandatory IFRS adopters pay lower bond yield spreads, but not lower loan spreads, after the mandate. These findings are consistent with debt providers responding positively to financial reporting of higher quality and comparability, but only when there is a greater reliance on publicly available financial statements than private communication. Lastly, we document that the observed debt market benefits are concentrated in countries with larger differences between domestic GAAP and IFRS and are present even for EU countries that did not experience concurrent financial reporting enforcement or other institutional reforms. Overall, our study documents positive economic consequences around the mandated IFRS adoption for corporate debt financing and, in particular, for bond financing.

Keywords: accounting regulation; IFRS; accounting quality; public and private debt markets; cost of debt

JEL Classification: G15, K22, M41, M48

Suggested Citation

Florou, Annita and Kosi, Urska, Does Mandatory IFRS Adoption Facilitate Debt Financing? (February 2015). Review of Accounting Studies, Forthcoming; INTACCT Working Paper No. MRTN-CT-2006-035850 INTACCT. Available at SSRN: https://ssrn.com/abstract=1508324 or http://dx.doi.org/10.2139/ssrn.1508324

Annita Florou

Queen Mary University of London ( email )

Mile End Rd
Mile End Road
London, London E1 4NS
United Kingdom

HOME PAGE: http://www.busman.qmul.ac.uk/staff/florou-annita.html

Urska Kosi (Contact Author)

University of Paderborn ( email )

Warburger Str. 100
Paderborn, D-33098
Germany

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria
+43 1 313365691 (Phone)

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