The Effect of Mandatory IFRS Adoption on Real and Accrual-Based Earnings Management Activities
46 Pages Posted: 17 Oct 2013 Last revised: 3 Dec 2014
Date Written: 2014
This study examines the effect of mandatory adoption of International Financial Reporting Standards (IFRS) on both accrual-based and real earnings management. While prior literature has mainly examined the effects of IFRS adoption on accrual-based earnings management, no study to date has focused on the impact of IFRS adoption on real earnings management. Using a sample of 15,206 observations from 22 European countries between 2000 and 2010, this study employs a control sample of voluntary adopters and applies a differences-in-differences design to control for confounding concurrent events. The results suggest that mandatory IFRS adoption had no significant impact on either real or accrual-based earnings management practices. Additional analysis on a sub-sample of firms with relatively strong earnings management incentives supports a dominant role for firm-level reporting incentives over accounting standards in shaping financial reporting quality.
Keywords: International Financial Reporting Standards (IFRS), Accruals earnings management, Real earnings management, Differences-in-differences design, Firm-level incentives
JEL Classification: M4, M41, M48
Suggested Citation: Suggested Citation