Effect of Mandatory IFRS Adoption on Accounting-Based Prediction Models for CDS Spreads

46 Pages Posted: 2 Jun 2014 Last revised: 28 May 2017

See all articles by Pepa Kraft

Pepa Kraft

HEC Paris

Wayne R. Landsman

University of North Carolina Kenan-Flagler Business School

Date Written: May 26, 2017

Abstract

This study examines the effects of mandatory IFRS adoption on accounting-based prediction models for CDS spreads for a sample of 357 firms in 16 IFRS-adopting countries. We do this by estimating accounting-based prediction models for CDS spreads separately for financial and non-financial firms before and after mandatory IFRS adoption. We find that mean and median absolute percentage prediction errors are larger for both financial and non-financial firms after mandatory IFRS adoption. We also estimate accounting-based prediction models for CDS spreads separately for financial and non-financial US firms before and after mandatory IFRS adoption to obtain prediction errors serve that as a benchmark. Although US firms also exhibit an increase in mean and median absolute percentage prediction errors over the same period, findings from regressions using a difference-in-difference design indicate that the increase is significantly greater for firms in countries that adopted IFRS mandatorily. We also find that in the post-adoption period, prediction errors are larger for firms in countries with low levels of and decreases in legal and regulatory quality.

Keywords: IFRS, credit markets

JEL Classification: M40

Suggested Citation

Kraft, Pepa and Landsman, Wayne R., Effect of Mandatory IFRS Adoption on Accounting-Based Prediction Models for CDS Spreads (May 26, 2017). Available at SSRN: https://ssrn.com/abstract=2444274 or http://dx.doi.org/10.2139/ssrn.2444274

Pepa Kraft (Contact Author)

HEC Paris ( email )

Jouy-en-Josas
France
644161543 (Phone)

HOME PAGE: http://www.hec.edu/Faculty-Research/Faculty-Directory/KRAFT-Pepa2

Wayne R. Landsman

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-3221 (Phone)
919-962-4727 (Fax)

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