38 Pages Posted: 7 Jun 2006
Date Written: July 2006
We address three research questions motivated by the recent ascent of International Financial Reporting Standards (IFRS) in Europe. First, analyzing the determinants of voluntary IFRS adoption by publicly traded German firms during the period 1998-2004, we find that size, international exposure, dispersion of ownership, and recent IPOs are important drivers. Second, using the results from this determinant model to construct propensity score-matched samples of IFRS and German-GAAP (HGB) firms, we document significant differences in terms of earnings quality: IFRS firms have more persistent, less predictable and more conditionally conservative earnings. Third, analyzing information asymmetry differences between IFRS and HGB firms, we show that IFRS adopters experience a decline in bid-ask spread of 70 base points and an average of 17 more days with price changes per year. On the other hand, IFRS adopter's stock prices seem to be more volatile. In the light of some important limitations of our study, we discuss IFRS-related research opportunities in post-2005 Europe.
Keywords: IFRS, earnings quality, earnings attributes, information asymmetry, standard setting, IAS Regulation, Europe, propensity-score matching, voluntary disclosure
JEL Classification: G14, M41, M43, M44, M47
Suggested Citation: Suggested Citation
Gassen, Joachim and Sellhorn, Thorsten, Applying IFRS in Germany: Determinants and Consequences (July 2006). Available at SSRN: https://ssrn.com/abstract=906802 or http://dx.doi.org/10.2139/ssrn.906802
By Ray Ball