Externalities of Financial Reporting Regulation on Management Control Systems

56 Pages Posted: 15 Apr 2024

See all articles by Beatriz Garcia Osma

Beatriz Garcia Osma

Universidad Carlos III de Madrid ; European Corporate Governance Institute (ECGI)

Jacobo Gomez-Conde

Universidad Autónoma de Madrid - Accounting Department

Araceli Mora

University of Valencia - Department of Accounting

Date Written: March 22, 2024

Abstract

We argue that the adoption of financial reporting standards leads to changes in information technology (IT) and management control systems (MCS). We further predict that such regulatory-driven exogenous variation in IT and MCS affects information production, and therefore, firm outcomes. We examine this unexplored externality of accounting regulation by studying the adoption of International Financial Reporting Standards (IFRS). Our evidence, collected from interviews with key stakeholders as well as survey and archival data, confirms that the implementation of new IFRS leads to changes in IT and MCS. We document consequences of these changes over firm performance using a difference-in-differences methodology for a large sample of companies worldwide. Our results uncover novel consequences of accounting standards adoption and implementation, via their impact on IT and MCS. This adds to our understanding of post-implementation reviews and cost-benefit analyses beyond financial reporting quality.

Keywords: Externalities of financial reporting; MCS change; Post-implementation review; Regulatory cost-benefit analysis; IFRS.

JEL Classification: M41

Suggested Citation

Garcia Osma, Beatriz and Gomez-Conde, Jacobo and Mora, Araceli, Externalities of Financial Reporting Regulation on Management Control Systems (March 22, 2024). Available at SSRN: https://ssrn.com/abstract=4781741 or http://dx.doi.org/10.2139/ssrn.4781741

Beatriz Garcia Osma

Universidad Carlos III de Madrid ( email )

Calle Madrid 126
Getafe, Madrid, Madrid 28903
Spain

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Jacobo Gomez-Conde (Contact Author)

Universidad Autónoma de Madrid - Accounting Department ( email )

Campus de Cantoblanco
Madrid, Madrid 28049
Spain

Araceli Mora

University of Valencia - Department of Accounting ( email )

Edificio Departamental Oriental
Avda. dels Tarongers, s/n
Valencia 46071
Spain

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