Firm Incentives, Institutional Factors and Accounting Quality: The IFRS Adoption in Brazil

48 Pages Posted: 16 Feb 2015

See all articles by Ana Gisbert

Ana Gisbert

Universidad Autónoma de Madrid

Bruno Salotti


Date Written: February 15, 2015


This study examines the role of firm-specific factors that influence the company decision to improve the level of accounting quality after the IFRS adoption. Particularly, we focus on an emerging market economic with an institutional setting characterized by weak governance mechanisms and low-speed institutional changes. The chosen setting allows to contribute with further evidence to the current literature relative to the role of institutional vs. firm-specific factors on reporting incentives and therefore, on the financial reporting decisions. Changing the accounting system is not enough to improve the context of financial opacity across emerging markets, as any new accounting regulation must be simultaneously accompanied by significant institutional changes that strength the enforcement mechanisms in place (Fan et al., 2011, Ball et al., 2000). When these “formal” institutional changes do not take place, companies may be force to establish a firm-specific commitment towards the appropriate enforcement of the new accounting system, in order to obtain the attained benefits of a accounting regulatory change. Consistent with this idea, we look at the impact of a set of firm-specific variables that may affect the financial reporting decision and therefore, the degree of accounting quality. Particularly, we focus a set of variables related to (a) the ownership structure, (b) a set of governance mechanisms: auditor and listing status; (c) the degree of internationalization, and (d) other financial characteristics. The results provide evidence on the relevance of a set of firm-specific characteristics on the level of earnings quality increase. Particularly, internationalization and growth opportunities are clear determinants of increases in earnings quality. Consistent with the previous literature, the ownership concentration reveals as a limiting factor to increases in earnings quality after the IFRS adoption. Finally, the results also suggest the lack of strong oversight and enforcement mechanisms compared to other institutional settings may harm the expected role of the auditors or alternative governance mechanisms such as the capital markets listing categories.

Keywords: IFRS, Brazil, Earnings Quality, Institutional Factors, Firm-specific incentives

JEL Classification: C21, C22, C33, M41

Suggested Citation

Gisbert, Ana and Salotti, Bruno, Firm Incentives, Institutional Factors and Accounting Quality: The IFRS Adoption in Brazil (February 15, 2015). Available at SSRN: or

Ana Gisbert (Contact Author)

Universidad Autónoma de Madrid ( email )

Avda. Francisco Tomás y Valiente, 5
Faculty of Economics
Madrid, Madrid 28049
0034 914976341 (Phone)

Bruno Salotti

FEA-USP ( email )

Av. Prof. Luciano Gualberto 908
São Paulo SP, São Paulo 05508-900

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