Are International Accounting Standards More Credit Relevant than Domestic Standards?

Forthcoming in Accounting and Business Research

50 Pages Posted: 26 Sep 2013 Last revised: 6 Dec 2016

See all articles by Annita Florou

Annita Florou

Bocconi University

Urska Kosi

Paderborn University; University of Ljubljana - Faculty of Economics

Peter F. Pope

Bocconi University; London School of Economics and Political Science

Date Written: October 1, 2016

Abstract

We examine whether the credit relevance of financial statements, defined as the ability of accounting numbers to explain credit ratings, is higher after firms are required to report under International Financial Reporting Standards (IFRS). We find an improvement in credit relevance for firms in seventeen countries after mandatory IFRS reporting is introduced in 2005; this increase is higher than that reported for a matched sample of US firms. The increase in credit relevance is particularly pronounced for higher risk speculative-grade issuers, where accounting information is predicted to be more important; and for IFRS adopters with large first-time reconciliations, where the impact of IFRS is expected to be greater. These tests provide reassurance that the overall enhancement in estimated credit relevance is driven by accounting changes related to IFRS adoption. Our results suggest that credit rating analysts’ views of economic fundamentals are more closely aligned with IFRS numbers, and that analysts anticipate at least some of the effects of the IFRS transition.

Keywords: IFRS, debt markets, credit ratings, credit relevance

JEL Classification: G15, G33, K20, M41, M48

Suggested Citation

Florou, Annita and Kosi, Urska and Pope, Peter F., Are International Accounting Standards More Credit Relevant than Domestic Standards? (October 1, 2016). Forthcoming in Accounting and Business Research, Available at SSRN: https://ssrn.com/abstract=2330756 or http://dx.doi.org/10.2139/ssrn.2330756

Annita Florou

Bocconi University ( email )

Via Roentgen 1
Milan, 20136
Italy

HOME PAGE: http://faculty.unibocconi.eu/annitaflorou/

Urska Kosi (Contact Author)

Paderborn University ( email )

Warburger Str. 100
Paderborn, 33098
Germany

University of Ljubljana - Faculty of Economics ( email )

Kardeljeva ploscad 17
Ljubljana, 1000
Slovenia

Peter F. Pope

Bocconi University ( email )

Dept of Accounting
Milan, 20136
Italy

London School of Economics and Political Science ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

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