The Impact of Legal and Voluntary Investor Protection on the Early Adoption of IFRS

37 Pages Posted: 17 Jun 2005

Date Written: June 16, 2005


Previous studies (Dumontier and Raffournier, 1998, El-Gazzar et al, 1999; Cuijpers and Buijink, 2004) typically explain the early adoption of IFRS by firm-specific benefits. However, the adoption of IFRS also leads to costs for company insiders, namely less managerial discretion and as a consequence smaller private benefits due to increased disclosure requirements and less accounting method choices. This paper argues that the cost of adopting IFRS depends on characteristics of the institutional environment, more specifically the level of investor protection.

Using a sample of European companies, we find that IFRS is more likely adopted in countries with strong laws protecting investors and/or extensive corporate governance recommendations where the loss of private benefits following IFRS-adoption is lower. Furthermore, the results show that corporate governance recommendations are as effective as hard laws in stimulating IFRS-adoption and that their impact increases as laws become weaker. This suggests that by improving corporate governance codes, countries can easily reduce the extraction of private benefits by managers and enhance the quality of the financial information. However, when looking at specific recommendations and laws, we find that shareholder rights with regard to voting rights and the general meeting need to be regulated by law in order to effectively reduce the level of private benefits.

Keywords: early adoption of IFRS; private benefits of control; corporate governance; legal investor protection.

JEL Classification: K22, M41, M43, M47, G34

Suggested Citation

Renders, Annelies and Gaeremynck, Ann, The Impact of Legal and Voluntary Investor Protection on the Early Adoption of IFRS (June 16, 2005). Available at SSRN: or

Annelies Renders (Contact Author)

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200MD

Ann Gaeremynck

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant B-3000
3216326921 (Phone)

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