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Mandatory Financial Reporting and Voluntary Disclosure: The Effect of Mandatory IFRS Adoption on Management Forecasts

70 Pages Posted: 7 Nov 2012 Last revised: 12 Feb 2016

Xi Li

London School of Economics

Holly Yang

Singapore Management University - School of Accountancy

Multiple version iconThere are 2 versions of this paper

Date Written: August 2015

Abstract

This study examines the effect of the mandatory adoption of International Financial Reporting Standards (IFRS) on voluntary disclosure. Using a difference-in-difference analysis, we document a significant increase in the likelihood and frequency of management earnings forecasts following mandatory IFRS adoption, consistent with the notion that IFRS adoption alters firms’ disclosure incentives in response to increased capital-market demand. We find the increase to be larger among firms domiciled in code-law countries, suggesting a catching-up effect among firms facing low disclosure incentives pre-adoption. We then propose and test three channels through which IFRS adoption could alter firms’ disclosure incentives: improved earnings quality, increased shareholder demand, and increased analyst demand. We find evidence consistent with all three channels.

Keywords: Voluntary disclosure, IFRS, Management forecasts, Legal regime, Capital-market demand

JEL Classification: G14, G15, K22, M41

Suggested Citation

Li, Xi and Yang, Holly, Mandatory Financial Reporting and Voluntary Disclosure: The Effect of Mandatory IFRS Adoption on Management Forecasts (August 2015). The Accounting Review, Forthcoming; Singapore Management University School of Accountancy Research Paper No. 2016-39. Available at SSRN: https://ssrn.com/abstract=2172014 or http://dx.doi.org/10.2139/ssrn.2172014

Xi Li (Contact Author)

London School of Economics ( email )

United Kingdom

HOME PAGE: http://www.lse.ac.uk/accounting/facultyAndStaff/profiles/Li.aspx

Holly Yang

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

HOME PAGE: http://sites.google.com/site/holly0417phd/

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