Voluntary adoption of non-local GAAP in the European Union: a study of determinants

Rick Cuijpers, Steven Maijoor and Willem Buijink
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Willem Buijink: METEOR

No 69, Research Memoranda from Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization

Abstract: This study examines the determinants of voluntary adoption of non-local accounting principles for financial reporting (non-local GAAP) by non-financial companies listed and domiciled in the European Union. We restrict ourselves to the two most predominant internationally accepted sets of accounting standards: International Accounting Standards (IAS) and United States generally accepted accounting principles (US GAAP). The maintained hypothesis is that firms will switch from local to non-local GAAP if the benefits outweigh the costs. This study provides insight in the characteristics of firms that experience positive net-benefits from non-local GAAP adoption. Considering that mandatory adoption of IAS is envisaged for listed EU companies from 2005 on, the results are of potential interest to EU and national financial reporting regulators.We have used various sources to identify EU companies that use non-local GAAP. The 1999 annual reports of all these companies were examined. We find that 133 non-financial companies in the EU voluntarily adopted non-local GAAP in 1999. This suggests that the net-benefits of using non-local GAAP are positive for only a small minority of EU companies.Companies that do voluntarily use non-local GAAP are more likely to be listed on a US exchange, the EASDAQ exchange in Brussels, and have more geographically dispersed operations. Furthermore, they are more likely to be domiciled in a country with lower quality financial reporting and where IAS is explicitly allowed as an alternative to local GAAP.

Keywords: accounting and auditing (search for similar items in EconPapers)
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Date: 2002
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Persistent link: http://EconPapers.repec.org/RePEc:dgr:umamet:2002069

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