Internet Appendix to 'Contractibility and Transparency of Financial Statement Information Prepared under IFRS: Evidence from Debt Contracts around IFRS Adoption'

66 Pages Posted: 1 Apr 2015 Last revised: 1 Mar 2017

See all articles by Ray Ball

Ray Ball

University of Chicago - Booth School of Business

Xi Li

London School of Economics

Lakshmanan Shivakumar

London Business School

Date Written: August 3, 2015

Abstract

A significant reduction in accounting-based debt covenants follows mandatory IFRS adoption, consistent with reduced contractibility of accounting information. We describe several properties of IFRS that could reduce contractibility, including increased flexibility given managers when selecting among and applying accounting rules, increased rule-making uncertainty, and increased emphasis on fair value accounting. The reduction in accounting covenant use is associated with measures of the difference between prior domestic standards and IFRS, defined in terms of both general and fair value accounting standards. Because IFRS adoption changed financial reporting in many ways simultaneously, it is difficult to trace the decline in accounting covenant use to individual IFRS properties, though we report larger declines in accounting covenant use in banks, which have a higher proportion of assets and liabilities that are fair-valued. Overall, IFRS rules appear to sacrifice debt contracting usefulness for objectives such as complying with an accounting measurement model focused on valuation uses.

Keywords: Bonds, Contractibility, Debt Covenants, Fair Value Accounting, IFRS, Loans, Transparency

Suggested Citation

Ball, Ray and Li, Xi and Shivakumar, Lakshmanan, Internet Appendix to 'Contractibility and Transparency of Financial Statement Information Prepared under IFRS: Evidence from Debt Contracts around IFRS Adoption' (August 3, 2015). Journal of Accounting Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2587316 or http://dx.doi.org/10.2139/ssrn.2587316

Ray Ball (Contact Author)

University of Chicago - Booth School of Business ( email )

Xi Li

London School of Economics ( email )

Department of Accounting
Houghton Street
London, WC2A 2AE
United Kingdom

HOME PAGE: http://www.lse.ac.uk/accounting/people/xi-li

Lakshmanan Shivakumar

London Business School ( email )

Regent's Park
London, NW1 4SA
United Kingdom
+44 20 7000 8115 (Phone)
+44 20 7000 8101 (Fax)

HOME PAGE: http://faculty.london.edu/lshivakumar/

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