Determinants and Consequences of a Voluntary Turn Away from IFRS to Local GAAP: Evidence from Switzerland
59 Pages Posted: 23 Dec 2012 Last revised: 22 Aug 2017
Date Written: December 21, 2012
We examine determinants and consequences of a turn away from IFRS to local GAAP, thereby exploiting a unique feature of the Swiss setting in which listed firms are allowed to switch from IFRS to Swiss GAAP, all else being equal. We posit that net benefits of IFRS are less for small firms with higher insider ownership. In addition, we predict that the net benefits of IFRS are not constant over time because of changes in IFRS and/or changes in firm-specific circumstances. To the extent that the switching firms’ costs of IFRS reporting outweigh its benefits, we do not predict adverse capital-market effects after a switch. Consistent with predictions, we find that (a) small firms with higher insider ownership and fewer foreign investor holdings are more likely to switch, (b) increasing reporting costs as well as changes in firm-specific circumstances affect switching propensity, (c) switching firms substantially reduce their disclosures after they switch, and (d) switching firms neither experience a decrease in liquidity nor negative announcement returns. Overall, our findings are important for standard setters and securities regulators in shaping (future) reporting requirements for listed firms.
Keywords: IFRS, small and mid-cap companies, ownership structure, Swiss GAAP, reporting costs and benefits
JEL Classification: G14, M41
Suggested Citation: Suggested Citation