The impact of IFRS 15 on revenue and earnings quality: evidence from China

Jerry Chen

Asian Review of Accounting, 2024, vol. 33, issue 3, 523-546

Abstract: Purpose - This study examines the impact of the International Financial Reporting Standard (IFRS) 15 on revenue and earnings quality in China. Design/methodology/approach - This study employs a difference-in-differences design with a treatment group and a control group, both listed in stock exchanges in China from 2015 to 2019. Entropy balancing is employed to mitigate any imbalanced distribution effects caused by the inherent difference within our sample. Findings - This study reveals an enhancement in the quality of revenue and earnings accruals after implementing IFRS 15 in China. However, adopters tend to engage in more real earnings management, and their revenue and earnings exhibit less persistence. Additional analysis shows that the new revenue standard substitutes for firm-level control factors in shaping the trade-off between accrual-based and real earnings management in jurisdictions with weak legal enforcement. Research limitations/implications - This study focuses on the staggered implementation of IFRS 15 in the Chinese setting; hence, the findings of this study might not be generalised to other countries. Practical implications - The findings of this study will be of interest to investors, given its focus on the revenue and earnings quality of companies that have adopted IFRS 15. Additionally, it holds implications for standard-setting organisations, particularly regarding post-implementation reviews, to comprehend how managers adjust their earnings management strategies in response to the enactment of IFRS 15. Originality/value - To the best of our knowledge, our study is one of the few to investigate the impact of mandatory adoption of new IFRS standards within jurisdictions using a difference-in-differences design. In addition, we provide evidence that the new revenue standards substitute for firm-level control factors in shaping the trade-off between accrual-based and real earnings management in jurisdictions with weak legal enforcement, addressing a gap in the literature.

Keywords: IFRS 15; Accrual-based earnings management; Real earnings management; Revenue and earnings persistence; China (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eme:arapps:ara-07-2024-0220

DOI: 10.1108/ARA-07-2024-0220

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