What drives the comparability effect of mandatory IFRS adoption?

Stefano Cascino and Joachim Gassen

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We investigate the effects of mandatory IFRS adoption on the comparability of financial accounting information. Using two comparability proxies based on De Franco et al. [2011] and a comparability proxy based on the degree of information transfer, our results suggest that the overall comparability effect of mandatory IFRS adoption is marginal. We hypothesize that firm-level heterogeneity in IFRS compliance explains the limited comparability effect. To test this conjecture, we first hand-collect data on IFRS compliance for a sample of German and Italian firms and find that firm-, region-, and country-level incentives systematically shape IFRS compliance. We then use the identified compliance determinants to explain the variance in the comparability effect of mandatory IFRS adoption and find it to vary systematically with firm-level compliance determinants, suggesting that only firms with high compliance incentives experience substantial increases in comparability. Moreover, we document that firms from countries with tighter reporting enforcement experience larger IFRS comparability effects, and that public firms adopting IFRS become less comparable to local GAAP private firms from the same country.

Keywords: international accounting; IFRS; comparability; compliance; reporting incentives (search for similar items in EconPapers)
JEL-codes: G14 M41 (search for similar items in EconPapers)
Date: 2015-03
New Economics Papers: this item is included in nep-acc
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Citations: View citations in EconPapers (55)

Published in Review of Accounting Studies, March, 2015, 20(1), pp. 242-282. ISSN: 1380-6653

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