What drives the comparability effect of mandatory IFRS adoption?
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We investigate the effects of mandatory International Financial Reporting Standards (IFRS) adoption on the comparability of financial accounting information. Using a set of alternative comparability measures, 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 these compliance determinants to explain the variance in the comparability effect of mandatory IFRS adoption and find 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.
KeywordsInternational accounting IFRS Comparability Compliance Reporting incentives
JEL ClassificationM41 M48 G14
We thank Lakshmanan Shivakumar (editor) and an anonymous referee for their insightful suggestions and constructive feedback. We acknowledge the helpful comments of Rashad Abdel-Khalik, Jan Barton, Sudipta Basu, Katheryn Bewley, Ulf Brüggemann, Maria Correia, Lucie Courteau, Dan Givoly, Steven Huddart, Bjørn Jørgensen, Bin Ke, Urška Kosi, Garen Markarian, Peter Pope, Karthik Ramanna, Bill Rees, Shyam Sunder, İrem Tuna, Pauline Weetman, Steven Zeff, and seminar participants at the University of Amsterdam, University of Bari, ESMT Berlin, Bocconi University, Cass Business School, University of Cologne, Edinburgh University, HEC Paris, IE Madrid, London School of Economics, University of Naples Federico II, Rotterdam School of Management as well as conference participants at the 2009 AAA International Accounting Section Mid-Year Meeting, the 2009 EAA Conference, the 2009 AAA Annual Meeting, and the 2010 Pennsylvania State University Annual Conference. We thank Katarina Wilhelm for excellent research assistance. Joachim Gassen acknowledges the financial support of the German research foundation (DFG) under project A7 of the collaborative research center SFB 649 at Humboldt University. Stefano Cascino thanks the SFB 649 for co-founding his research visit at Humboldt University.
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