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

Abstract

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

Doukakis, Leonidas C., The Effect of Mandatory IFRS Adoption on Real and Accrual-Based Earnings Management Activities (2014). Journal of Accounting and Public Policy (JAPP), Volume 33, Issue 6, Nov.–Dec. 2014, pages 551–572. Available at SSRN: https://ssrn.com/abstract=2340951

Leonidas C. Doukakis (Contact Author)

University of Lausanne, HEC ( email )

Unil Chamberonne, Batiment Anthropole
Lausanne, 1015
Switzerland

Register to save articles to
your library

Register

Paper statistics

Downloads
801
Abstract Views
2,853
rank
29,564
PlumX Metrics