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

Journal of accounting research, 2013-06, Vol.51 (3), p.495-547 [Peer Reviewed Journal]

2013 The Accounting Research Center at the University of Chicago Booth School of Business ;Copyright ©, University of Chicago on behalf of the Accounting Research Center, 2013 ;ISSN: 0021-8456 ;EISSN: 1475-679X ;DOI: 10.1111/1475-679X.12005 ;CODEN: JACRBR

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  • Title:
    Adopting a Label: Heterogeneity in the Economic Consequences Around IAS/IFRS Adoptions
  • Author: DASKE, HOLGER ; HAIL, LUZI ; LEUZ, CHRISTIAN ; VERDI, RODRIGO
  • Subjects: Accounting standards ; Annual reports ; Capital costs ; Capital market ; Cost of capital ; Economic capital ; Economic conditions ; Economic costs ; Economic impact ; Enterprises ; Financial accounting ; Generally accepted accounting principles ; Incentives ; International accounting standards ; International Financial Reporting Standards ; Liquidity ; Prices ; Studies
  • Is Part Of: Journal of accounting research, 2013-06, Vol.51 (3), p.495-547
  • Description: 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 cost 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 in firms' broader reporting strategies, and not just the standards.
  • Publisher: Malden, USA: Blackwell Publishing Inc
  • Language: English
  • Identifier: ISSN: 0021-8456
    EISSN: 1475-679X
    DOI: 10.1111/1475-679X.12005
    CODEN: JACRBR
  • Source: Alma/SFX Local Collection
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