Mandatory IFRS Adoption: The Trade-Off between Accrual and Real-Based Earnings Management

Posted: 15 Apr 2012

See all articles by Elisabetta Ipino

Elisabetta Ipino

Concordia University, Quebec

Antonio Parbonetti

University of Padua

Date Written: September 2011

Abstract

This paper examines whether firms substitute accrual and real-based earnings management once the International Financial Reporting System (IFRS) becomes mandatory. Using a sample of 53,853 firm-year observations from 37 countries between 2000 and 2008, we document a decrease (increase) in accrual (real-based) earnings management activities for mandatory IFRS adopters only in countries with strict enforcement regimes. Moreover, we show that the switch from accrual to real-based earnings management activities leads to a much larger decline in performance. Taken together the results document that the accounting regulators' efforts to increase earnings quality by reducing managerial discretion may have the unintended consequence of increasing real-based earnings management and reducing firms' performance.

Keywords: IFRS adoption, accrual earnings management, real earnings management

JEL Classification: M40, M41

Suggested Citation

Ipino, Elisabetta and Parbonetti, Antonio, Mandatory IFRS Adoption: The Trade-Off between Accrual and Real-Based Earnings Management (September 2011). Available at SSRN: https://ssrn.com/abstract=2039711 or http://dx.doi.org/10.2139/ssrn.2039711

Elisabetta Ipino

Concordia University, Quebec ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1MB
Canada

Antonio Parbonetti (Contact Author)

University of Padua ( email )

Via del Santo 33
Padova, 35123
Italy
+39 049 8274261 (Phone)

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