Adopting a Label: Heterogeneity in the Economic Consequences Around IAS/IFRS Adoptions

By Holger Daske, Luzi Hail, Christian Leuz, Rodrigo S. Verdi. 2013

658 citations recorded by the source corpus.

This study examines liquidity and cost of capital effects around voluntary and mandatory IAS/IFRS adoptions. In contrast to prior work, we focus on the firm-level heterogeneity in the economic consequences, recognizing that firms have considerable discretion in how they implement the new standards. Some firms may make very few changes and adopt IAS/IFRS more in name, while for others the change in standards could be part of a strategy to increase their commitment to transparency. To test these predictions, we classify firms into ‘label’ and ‘serious’ adopters using firm-level changes in reporting incentives, actual reporting behavior, and the external reporting environment around the switch to IAS/IFRS. We analyze whether capital-market effects are different across ‘serious’ and ‘label’ firms. While on average liquidity and costs of capital often do not change around voluntary IAS/IFRS adoptions, we find considerable heterogeneity: ‘Serious’ adoptions are associated with an increase in liquidity and a decline in cost of capital, whereas ‘label’ adoptions are not. We obtain similar results when classifying firms around mandatory IFRS adoption. Our findings imply that we have to exercise caution when interpreting capital-market effects around IAS/IFRS adoption as they also reflect changes in reporting incentives or broader changes in firms’ reporting strategies, and not just the standards.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/43b0d3ff41489a2a5c332ef62550c26d9085b757

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Citations in the corpus

Dividend Payouts and Information Shocks (2014, methodology): “Both firm events have been shown, under certain circumstances, to go along with an improvement of the information environment (e.g., Barth, Landsman, and Lang 2008; Daske et al. 2013; Bailey, Karolyi, and Salva 2006; Hail and Leuz 2009), and therefore have the potential to affect the relative costs ”
Textual Analysis and International Financial Reporting: Large Sample Evidence (2015, positive): “A potential issue with the preceding approach, which is shared with other research such as Daske et al. (2013), is the fact that, while IFRS was largely exogenous from the standpoint of the firm, variation in disclosure changes around IFRS adoption may not only reflect exogenous variation in the…”
Does a common set of accounting standards affect tax-motivated income shifting for multinational firms? (2016, background): “Studies examining capital markets effects of IFRS include Armstrong et al. (2010), Beneish et al. (2014), Christensen et al. (2013), Daske et al. (2013, 2008) and Horton and Serafeim (2010).”
Mandatory IFRS adoption: the trade-off between accrual-based and real earnings management (2017, methodology): “Following Daske et al. (2013), to reduce measurement errors and allow for the possibility that incentives change slowly over time, we calculate the firm-level monitoring mechanism and Accounting and Business Research 111 incentives as rolling averages over the five years before mandatory IFRS…”
Directors׳ and officers׳ liability insurance and the cost of equity☆ (2016, methodology): “(5) 28 Following Lang and Lundholm (1996) and Ali et al. (2007), FERR is the 12-month average of the absolute values of analysts’ earnings forecast errors, and FDISP is 12-month average of the inter-analyst dispersions of earnings forecasts.”
The Effect of IAS/IFRS Adoption on Earnings Management (Smoothing): A Closer Look at Competing Explanations (2013, neutral): “Whether this discretion is used to opportunistically manage earnings or to convey managers’ private information about the future prospects of the firm depends on management’s incentives (Burgstahler et al., 2006; Daske et al., 2013).”
What drives the comparability effect of mandatory IFRS adoption? (2014, neutral): “This finding is consistent with the argument supported by Daske et al. (2013) and might also be driven by the German enforcement system being more efficient than its Italian counterpart.”
Mandatory IFRS Reporting and Changes in Enforcement (2013, methodology): “Among other things, studies show positive abnormal stock returns during important events leading up to IFRS adoption (Armstrong et al., 2010); an increase in market liquidity and decrease in cost of capital (Daske et al., 2008, 2013; Li, 2010; 10!”
Accounting Standards and International Portfolio Holdings (2014, background): “…solely to accounting standards neglects factors such as the transparency of a country’s institutions (Gelos and Wei 2005) or firm-level Electronic copy available at: http://ssrn.com/abstract=1430589 2 incentives to select into a particular reporting regime (Covrig et al. 2007; Daske et al. 2013).”
IFRS – 10 years later (2016, background): “Daske et al. (2013) distinguish between firms with high and low reporting quality incentives, which they classify as serious and label voluntary IFRS adoptions.”
Incentives or Standards: What Determines Accounting Quality Changes around IFRS Adoption? (2015, methodology): “The key difference between our paper and Daske et al. (2013) is that we follow the methodology of Barth et al. (2008), capture IFRS adoption incentives through revealed preferences, and that we examine both voluntary and mandatory adopters using a single-country setting.”
The Economics of Disclosure and Financial Reporting Regulation: Evidence and Suggestions for Future Research (2015, background): “Of particular relevance are studies showing that even when firms are subject to the same accounting standards, reporting practices differ considerably across firms and countries (e.g., Ball et al., 2003; Ball and Shivakumar, 2005; Burgstahler et al., 2006; Lang et al., 2006; Daske et al., 2013).”
A review of the IFRS adoption literature (2016, background): “Daske et al. (2013) provide evidence that simply adopting IAS/IFRS does not necessarily lead to the purported stock market benefits unless firm-level reporting incentives are also aligned.”