Volunteering for Smoke and Mirrors? A Study of the Voluntary Adoption of Accounting Standards

49 Pages Posted: 18 Aug 2017

See all articles by Nishant Agarwal

Nishant Agarwal

Indian School of Business (ISB), Hyderabad; The University of Western Australia - UWA Business School

Ranjani Krishnan

Michigan State University - Department of Accounting & Information Systems

Luke Weiler

Michigan State University

Date Written: August 18, 2017

Abstract

We examine the influence of economic and institutional pressures on firms’ voluntary adoption and subsequent implementation of accounting standards. Using a sample of firms that voluntarily adopted International Financial Reporting Standards (IFRS), we demonstrate that economic pressures are associated with likelihood of voluntary adoption of IFRS. We distinguish between three types of economic forces – political-economic, macroeconomic, and industrial-economic. Diffusion of adoption is associated with an increased likelihood of adoption, indicating that mimetic institutional forces influence adoption. However, although diffusion increases adoption, it is also associated in some instances with an increase in decoupling, whereby firms adopt the accounting standard in policy but do not make changes to their accounting systems in practice. Analysis suggests that while economic pressures can motivate IFRS adoption, and institutional pressures can precipitate adoption, the manner of adoption varies across organizations. We contribute to the literature, which has neglected to employ archival models to demonstrate the heterodox ways in which firms respond to economic and institutional pressures. Additionally, we introduce the notion of “voluntary decoupling”, which refers to policy-practice gaps in organizations’ adoption of voluntary standards. Our paper provides a richer understanding of the factors driving voluntary adoption as well the complexity present in the types of adoption strategies observed in practice.

Keywords: Institutional Theory, IFRS, Decoupling

JEL Classification: M41, M48

Suggested Citation

Agarwal, Nishant and Krishnan, Ranjani and Weiler, Luke, Volunteering for Smoke and Mirrors? A Study of the Voluntary Adoption of Accounting Standards (August 18, 2017). AAA 2018 Management Accounting Section (MAS) Meeting, Available at SSRN: https://ssrn.com/abstract=3022051

Nishant Agarwal

Indian School of Business (ISB), Hyderabad ( email )

H-12, SV-4, Indian School of Business
Gachibowli
Hyderabad, Gachibowli 500 032
India
9810004119 (Phone)

HOME PAGE: http://www.isb.edu

The University of Western Australia - UWA Business School ( email )

Crawley, Western Australia 6009
Australia

Ranjani Krishnan (Contact Author)

Michigan State University - Department of Accounting & Information Systems ( email )

270 North Business Complex
East Lansing, MI 48824-1034
United States
517-353-4687 (Phone)
517-432-1101 (Fax)

Luke Weiler

Michigan State University ( email )

270 North Business Complex
East Lansing, MI 48824-1034
United States

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