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Review of Accounting Studies

Erschienen in:

01.09.2012

Why do firms rarely adopt IFRS voluntarily? Academics find significant benefits and the costs appear to be low

verfasst von: Hans B. Christensen

Erschienen in: Review of Accounting Studies | Ausgabe 3/2012

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Abstract

Kim and Shi (Rev Account Stud, doi:10.1007/s11142-012-9190-y, this issue) document that voluntary IFRS adoption is associated with significant benefits and argue that the effect is causal—a conclusion that is similar to many published papers on IFRS adoption. Yet voluntary IFRS adopters constitute only a small percentage of the global population of firms, which implies that either practitioners behave irrationally or the benefits are incorrectly estimated by academics. In this discussion I argue that the error is on the part of academics, not practitioners, and that it is mainly due to the lack of exogenous variation in accounting standards. This conclusion is based on inconsistencies between the estimated benefits and costs of IFRS adoption, as well as the accounting standards choices of presumed rational managers. I also propose a contracting explanation for the capital market benefits around IFRS adoption in which managers behave rationally, but IFRS per se is not the cause.

Vorheriger Artikel IFRS reporting, firm-specific information flows, and institutional environments: international evidence

Nächster Artikel Why do pro forma and Street earnings not reflect changes in GAAP? Evidence from SFAS 123R

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See the literature review in Kim and Shi (this issue, p. 1) for capital market benefits documented upon voluntary IFRS adoption. Notable exceptions that provide a more nuanced picture include Van Tendeloo and Vanstraelen (2005), Daske (2006), and Daske et al. (2011). The evidence on mandatory IFRS adoption is also mixed (for example, Daske et al. 2008), but in this discussion I focus on the consequences of voluntary IFRS adoption.

See, for instance, the European Commission’s evaluation of mandatory IFRS a few years after the mandate (EU 2008, p. 7): “Academics have started to analyse the impact of introduction of IFRS on securities markets, but it is still too early to give conclusive results. However, preliminary studies indicate that there is an overall reduction in the cost of capital for companies supplying IFRS accounts.”

See iasplus.com.

The IFRS adoption frequencies reported by Kim and Shi in Table 1 are most likely biased upward compared with the adoption frequencies in the population of firms. The upward bias occurs because large firms are more likely to voluntarily adopt IFRS (see Table 4) and more likely to be covered by the databases that Kim and Shi use. Hence, Worldscope data, which is also biased towards large firms and therefore IFRS adopters, suggest that less than 3 % of the Worldscope universe of firms had adopted IFRS voluntarily by 2000.

I thank the authors for providing this statistic.

Among the new market segments that required the adoption of international standards (IFRS/US-GAAP) were Neuer Markt and SWX [see Leuz (2003) for details]. In addition to these market segments, a number of European stock market indices included only firms that complied with IFRS. For simplicity I focus on the stock market segments in my discussion, but the arguments logically extend to most contracting explanations for adopting IFRS voluntarily.

See Ashbaugh-Skaife et al. (2006) for a thorough discussion of the limitations involved with using stock price synchronicity in international samples.

Ashbaugh, H. (2001). Non-US firms’ accounting standard choices. Journal of Accounting and Public Policy, 2, 129–153.CrossRef

Ashbaugh-Skaife, H., Gassen, J., & LaFond, R. (2006). Does stock price synchronicity represent firm-specific information? The international evidence. Unpublished working paper.

Ball, R. (2006). International Financial Reporting Standards (IFRS): Pros and cons for investors. Accounting and Business Research. International Accounting Policy Forum (pp. 5–27).

Ball, R., Kothari, S. P., & Robin, A. (2000). The effect of international institutional factors on properties of accounting earnings. Journal of Accounting and Economics, 29, 1–51.CrossRef

Ball, R., Robin, A., & Wu, J. (2003). Incentives versus standards: Properties of accounting income in four East Asian countries. Journal of Accounting and Economics, 36, 235–270.CrossRef

Burgstahler, D., Hail, L., & Leuz, C. (2006). The importance of reporting incentives: Earnings management in European private and public firms. The Accounting Review, 81, 983–1017.CrossRef

Christensen, H. B., Lee, E., & Walker, M. (2008). Incentives or standards: What determines accounting quality changes around IFRS adoption? Manchester Business School working paper.

Cuijpers, R., & Buijink, W. (2005). Voluntary adoption of non-local GAAP in the European Union: A study of determinants and consequences. European Accounting Review, 14, 487–524.CrossRef

Daske, H. (2006). Economic benefits of adopting IFRS or US-GAAP—Have the expected costs of equity capital really decreased? Journal of Business, Finance and Accounting, 33, 329–373.CrossRef

Daske, H., Hail, L., Leuz, C., & Verdi, R. (2008). Mandatory IFRS reporting around the world: Early evidence on the economic consequences. Journal of Accounting Research, 46, 1085–1142.

Daske, H., Hail, L., Leuz, C., & Verdi, R. S. (2011). Adopting a label: Heterogeneity in the economic consequences of IFRS adoptions, University of Chicago, University of Pennsylvania, MIT and University of Mannheim working paper.

Djankov, S., Glaeser, E., La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. (2003). The new comparative economics. Journal of Comparative Economics, 31, 595–619.CrossRef

EU. (2008). Report from the commission to the council and the European Parliament. Commission of the European Community, COM 215 final, Brussels.

Francis, J. R., Lennox, C. S., & Wang, Z. (2010). Selection models in accounting research. University of Missouri-Columnia and Nanyang Technological University working paper.

Gassen, J., & Sellhorn, T. (2006). Applying IFRS in Germany—Determinants and consequences. Praxis: BetriebswirtschaftlicheForschung und, 58.

Kim, J. -B., & Shi, H. IFRS reporting, firm-specific information flows, and institutional environments: International evidence. Review of Accounting Studies, doi:10.1007/s11142-012-9190-y (this issue).

La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. (1997). Legal determinants of external finance. Journal of Finance, 52, 1131–1150.CrossRef

Leuz, C. (2003). IAS versus US GAAP: Information asymmetry based evidence from Germany’s new market. Journal of Accounting Research, 41, 445–472.

Leuz, C., & Verrecchia, R. (2000). The economic consequences of increased disclosure. Journal of Accounting Research, 38, 91–124.CrossRef

SEC. (2008). Roadmap for the potential use of financial statements prepared in accordance with International Financial Reporting Standards by US issuers, Securities and Exchange Commission.

Shleifer, A. (2005). Understanding regulation. European Financial Management, 11, 439–451.CrossRef

Tarca, A. (2004). International convergence of accounting practices: Choosing between IAS and US-GAAP. Journal of International Financial Management & Accounting, 15, 60–91.CrossRef

Van Tendeloo, B., & Vanstraelen, A. (2005). Earnings management under German GAAP versus IFRS. European Accounting Review, 14, 155–180.CrossRef

Zeff, S. A. (2012). The evolution of the IASC into the IASB, and the challenges it faces, The Accounting Review, 87(3), 807–837.

Titel: Why do firms rarely adopt IFRS voluntarily? Academics find significant benefits and the costs appear to be low
verfasst von: Hans B. Christensen
Publikationsdatum: 01.09.2012
Verlag: Springer US
Erschienen in: Review of Accounting Studies / Ausgabe 3/2012
Print ISSN: 1380-6653
Elektronische ISSN: 1573-7136
DOI: https://doi.org/10.1007/s11142-012-9202-y

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