Mandatory IFRS Adoption and Changes in Default Prediction Accuracy

48 Pages Posted: 11 May 2017

See all articles by Elizabeth F. Gutierrez

Elizabeth F. Gutierrez

Universidad de Chile

Maria Vulcheva

Florida International University

Date Written: April 04, 2017

Abstract

The study tests for changes in default prediction accuracy following the country-level switch to International Financial Reporting Standards (IFRS) in 20 European Union (EU) and nonEU jurisdictions. Using a default prediction model that combines both accounting and market inputs, we find that compared to a control group of non-adopters, IFRS adopters do not benefit from the international standards in terms of default prediction accuracy. Further cross-sectional analyses of companies from adopting jurisdictions in the post-adoption period show that voluntary adopters and companies domiciled in jurisdictions with large distances between their local GAAP and IFRS have higher default prediction accuracy. Higher enforcement is associated with higher default prediction accuracy in the EU and with lower default prediction accuracy in non-EU jurisdictions. The results add to the literature on the consequences of IFRS adoption and speak to the performance of default prediction models across jurisdictions, given a change in accounting regulation.

Keywords: IFRS, Default Prediction, Incentives, Enforcement

JEL Classification: M4, M41

Suggested Citation

Gutierrez, Elizabeth F. and Vulcheva, Maria, Mandatory IFRS Adoption and Changes in Default Prediction Accuracy (April 04, 2017). Available at SSRN: https://ssrn.com/abstract=2965715 or http://dx.doi.org/10.2139/ssrn.2965715

Elizabeth F. Gutierrez (Contact Author)

Universidad de Chile ( email )

Pío Nono Nº1, Providencia
Santiago, R. Metropolitana 7520421
Chile

Maria Vulcheva

Florida International University ( email )

11200 SW 8 Street RB244B
Miami, FL 33199
United States

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