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

European Accounting Review, Forthcoming

49 Pages Posted: 15 May 2020

See all articles by Pepa Kraft

Pepa Kraft

HEC Paris

Wayne R. Landsman

University of North Carolina Kenan-Flagler Business School

Zilu SHAN

HEC Paris

Multiple version iconThere are 2 versions of this paper

Date Written: April 7, 2020

Abstract

In this study, we examine the effects of mandatory IFRS adoption on accounting-based prediction models of CDS spreads for a sample of 292 firms in 16 countries. In our examination, we estimate the models for both 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 of CDS spreads separately for financial and non-financial US firms as a benchmark. Although US firms also show an increase in the mean and median absolute percentages of prediction errors over the same period, our findings from regressions that use 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 weaker institutions such as low levels of property rights and more restrictive access to credit.

Keywords: IFRS, credit markets

JEL Classification: M40

Suggested Citation

Kraft, Pepa and Landsman, Wayne R. and SHAN, Zilu, Effect of Mandatory IFRS Adoption on Accounting-Based Prediction Models for CDS Spreads (April 7, 2020). European Accounting Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3570515

Pepa Kraft

HEC Paris ( email )

Jouy-en-Josas
France
644161543 (Phone)

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

Wayne R. Landsman (Contact Author)

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)

Zilu SHAN

HEC Paris ( email )

Jouy-en-Josas
France

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