Review of Accounting Studies

, Volume 12, Issue 4, pp 623–657 | Cite as

Financial statement effects of adopting international accounting standards: the case of Germany

Article

Abstract

Using a sample of German firms, we investigate the financial statement effects of adopting International Accounting Standards (IAS) during 1998 through 2002. We find that total assets and book value of equity, as well as variability of book value and income, are significantly higher under IAS than under German GAAP (HGB). In addition, book value and income are no more value relevant under IAS than under HGB, and HGB (IAS) income is highly persistent (transitory). Finally, we find weak evidence that IAS income exhibits greater conditional conservatism than HGB income. Our results are consistent with the fair-value (income smoothing) orientation of IAS (HGB).

Keywords

International Accounting Standards Germany Fair-value accounting 

JEL Classifications

M41 G15 

References

  1. Alford, A., Jones, J., Leftwich, R., & Zmijewski, M. (1993). The relative informativeness of accounting disclosures in different countries. Journal of Accounting Research, 31, 183–223.CrossRefGoogle Scholar
  2. Aboody, D., Hughes, J., & Liu, J. (2002). Measuring value relevance in a (possibly) inefficient market. Journal of Accounting Research, 40, 965–986.CrossRefGoogle Scholar
  3. Alexander, D., & Archer, S. (2001). European accounting guide (4th ed.). Aspen Law & Business, Gaithersbury, NY.Google Scholar
  4. Ali, A., & Hwang, L. (2000). Country-specific factors related to financial reporting and the value relevance of accounting data. Journal of Accounting Research, 38, 1–22.CrossRefGoogle Scholar
  5. Ashbaugh, H., & Olsson, P. (2002). An exploratory study of the valuation properties of cross-listed firms’ IAS and U.S. GAAP earnings and book values. The Accounting Review, 77, 107–126.CrossRefGoogle Scholar
  6. 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.CrossRefGoogle Scholar
  7. Ball, R., Robin, A., & Wu, J. S. (2003). Incentives versus standards: Properties of accounting income in four east Asian countries. Journal of Accounting and Economics, 36, 235–270.CrossRefGoogle Scholar
  8. Barth, M. E., & Clinch, G. (1996). International accounting differences and their relation to share prices: Evidence from U.K., Australian and Canadian firms. Contemporary Accounting Research, 13, 135–166.CrossRefGoogle Scholar
  9. Barth, M. E., Beaver, W. H., & Landsman, W. R. (2001). The relevance of the value relevance literature for financial accounting standard setting: Another view. Journal of Accounting and Economics, 31, 77–104.CrossRefGoogle Scholar
  10. Barth, M. E., Landsman, W. R., & Lang, M. (2005). International accounting standards and accounting quality. Working paper, Stanford University and University of North Carolina.Google Scholar
  11. Basu, S. (1997). The conservatism principle and the asymmetric timeliness of earnings. Journal of Accounting and Economics, 24, 3–37.CrossRefGoogle Scholar
  12. Belsley, D. A., Kuh, E., & Welsch, R. E. (1980). Regression diagnostics. Wiley, New York, NY.Google Scholar
  13. Biddle, G., Seow, G., & Siegel, A. (1995). Relative versus incremental information content. Contemporary Accounting Research, 12, 1–23.CrossRefGoogle Scholar
  14. Celarier, M. (1993). Germany’s Phantom Reserves. Global Finance, 7, 60–63.Google Scholar
  15. Collins, D., Maydew, E., & Weiss, I. (1997). Changes in the value-relevance of earnings and book values over the past forty years. Journal of Accounting and Economics, 24, 39–67.CrossRefGoogle Scholar
  16. Coopers & Lybrand. (1993). International accounting summaries: A guide for interpretation and comparison (2nd ed.). Wiley, New York, NY.Google Scholar
  17. Cramer, J. S. (1987). Mean and variance of R 2 in small and moderate samples. Journal of Econometrics, 35, 253–266.CrossRefGoogle Scholar
  18. Easton, P. D. (1998). Discussion of revalued financial, tangible, and intangible assets: Association with share prices and nonmarket based value estimates. Journal of Accounting Research, 36(Supplement), 235–247.CrossRefGoogle Scholar
  19. Efron, B., & Tibshirani, R. (1993). An introduction to the bootstrap. Chapman & Hall, New York, NY.Google Scholar
  20. Ernst and Young. (2004). Effects of adopting IAS: 2002–2005. http://www.ey.com/GLOBAL/content.nsf/International/Assurance_-_IAS_- _Effects_of_Adopting_IAS_2002_-_2005.Google Scholar
  21. Fama, E., & French, K. (1997). Industry costs of equity. Journal of Financial Economics, 43, 153–193.CrossRefGoogle Scholar
  22. GAAP (2000). A Survey of National Accounting Rules in 53 Countries. Arthur Andersen, BDO, Deloitte Touche Tohmatsu, Ernst & Young International, Grant Thornton, KPMG, PricewaterhouseCoopers, Editor Christopher W Nobes.Google Scholar
  23. Harris, T., Lang, M., & Moller, H. (1994). The value relevance of German accounting measures: An empirical analysis. Journal of Accounting Research, 32, 187–209.CrossRefGoogle Scholar
  24. Harris, M., & Muller, K. (1999). The market valuation of IAS versus US GAAP accounting measures using Form 20-F reconciliations. Journal of Accounting and Economics, 26, 285–312.CrossRefGoogle Scholar
  25. Heckman, J. (1979). Sample selection bias as a specification error. Econometrica, 47, 153–161.CrossRefGoogle Scholar
  26. Hofheinz, P. (2002). EU to embrace accounting method not used in U.S. The Wall Street Journal June 2, A12.Google Scholar
  27. Hung, M. (2000). Accounting standards and value relevance of earnings: An international analysis. Journal of Accounting and Economics, 30, 401–420.CrossRefGoogle Scholar
  28. Joos, P., & Lang, M. (1994). The effects of accounting diversity: Evidence from the European Union. Journal of Accounting Research, 32(Supplement), 141–168.CrossRefGoogle Scholar
  29. Karamanou, I., & Nishiotis, G. (2005). The valuation effects of firm voluntary adoption of International Accounting Standards. Working paper, University of Cyprus.Google Scholar
  30. Kothari, S. P., & Zimmerman, J. (1995). Price and return models. Journal of Accounting and Economics, 20, 155–192.CrossRefGoogle Scholar
  31. La Porta, R., Lopez-de-Silanes, R., Shleifer, A., & Vishny, R. W. (1998). Law and finance. Journal of Political Economy, 106, 1113–1155.CrossRefGoogle Scholar
  32. Lang, M., Raedy, J., & Yetman, M. (2003). How representative are firms that are cross-listed in the United States? An analysis of accounting quality. Journal of Accounting Research, 41, 363–386.CrossRefGoogle Scholar
  33. Leuz, C. (2003). IAS versus U.S. GAAP: Information asymmetry-based evidence from Germany’s New Market. Journal of Accounting Research, 41, 445–427.CrossRefGoogle Scholar
  34. Leuz, C., & Verrecchia, R. (2000). The economic consequences of increased disclosure. Journal of Accounting Research, 38(Supplement), 91–124.CrossRefGoogle Scholar
  35. Leuz, C., & Wustemann, J. (2004). The role of accounting in the German financial system. Published in The German financial system. Oxford University Press.Google Scholar
  36. Lev, B. (1989). On the usefulness of earnings and earnings research: Lessons and directions from two decades of empirical research. Journal of Accounting Research, 27(Supplement), 153–192.CrossRefGoogle Scholar
  37. Ohlson, J. A. (1995). Earnings, book values, and dividends in equity valuation. Contemporary Accounting Research, 11, 661–688.CrossRefGoogle Scholar
  38. Vuong, Q. (1989). Likelihood ratio tests for model selection and non-nested hypotheses. Econometrica, 57, 307–333.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC 2007

Authors and Affiliations

  1. 1.Leventhal School of Accounting, Marshall School of BusinessUniversity of Southern CaliforniaLos AngelesUSA

Personalised recommendations