Why Do Firms Rarely Adopt IFRS Voluntarily? Academics Find Significant Benefits and the Costs Appear to be Low

13 Pages Posted: 9 Mar 2012 Last revised: 28 May 2012

Hans Bonde Christensen

University of Chicago - Booth School of Business

Date Written: March 8, 2012

Abstract

Kim and Shi (this issue) document that voluntary IFRS adoption is associated with significant benefits and argue that the effect is causal – a conclusion that is similar to many published papers on IFRS adoption. Yet voluntary IFRS adopters constitute only a small percentage of the global population of firms, which implies that either practitioners behave irrationally or the benefits are incorrectly estimated by academics. In this discussion I argue that the error is on the part of academics, not practitioners, and that it is mainly due to the lack of exogenous variation in accounting standards. This conclusion is based on inconsistencies between the estimated benefits and costs of IFRS adoption, as well as the accounting standards choices of presumed rational managers. I also propose a contracting explanation for the capital market benefits around IFRS adoption in which managers behave rationally, but IFRS per se is not the cause.

Keywords: International accounting, International accounting standards (IAS), International Financial Reporting Standards (IFRS)

JEL Classification: G14, G15, G30, K22, M41, M47

Suggested Citation

Christensen, Hans Bonde, Why Do Firms Rarely Adopt IFRS Voluntarily? Academics Find Significant Benefits and the Costs Appear to be Low (March 8, 2012). Review of Accounting Studies, Vol. 17, No. 3, 2012. Available at SSRN: https://ssrn.com/abstract=2018337 or http://dx.doi.org/10.2139/ssrn.2018337

Hans Bonde Christensen (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 South Woodlawn Avenue
Chicago, IL 60637
United States

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