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In recent years, there has been a global trend of adopting International Financial Reporting Standards (IFRS). In 2011, Canada joined this trend by implementing mandatory IFRS adoption for publicly traded firms. Proponents of IFRS adoption claim that it will benefit investors by improving comparability and transparency of firms. At the same time, research on family firms has seen increasing focus. Because of family ties to the firm, family firms can exhibit different motivations, behaviours and performance than do non-family firms. In this research, I attempt to gain insight on the effects of IFRS adoption for a unique set of firms, namely publicly traded family firms by examining the effect of IFRS adoption on earnings informativeness. Although previous literature examines the economic consequences of IFRS adoption, my study is the first to my knowledge that examines IFRS adoption effects on the unique set of family firms. I run a pooled regression to examine the effects of IFRS adoption on earnings informativeness. I find that IFRS adoption by Canadian family firms is associated with a statistically significant higher level of earnings informativeness. The findings of this research could have implications for standard setters, minority shareholders of family firms, and academic researchers.
The purpose of this paper is to find out the impact of the adoption of IFRS on the practice of earnings management. It provides empirical results using panel data from 2000 to 2018 of the 19,869 firm-year observations of available data from 791 Canadian firms based on the Modified Jones model. The result of our study supports that there is the existence of earnings management practice. The overall result was negative but not significant suggesting adopting IFRS has no direct influence on earnings management used among publicly listed firms. In addition, this paper examined the influence of firm factors (independent variables) of leverage, return on assets, and enrings growth, the interaction variables of IFRS adoption on earnings management. Obtained results in this paper indicate the interaction variable of IFRS adoption is positively related with earnings management, but not significant, suggesting that adopting IFRS has no direct influence on earnings management used among publicly listed firms.
This paper examines the effects of the IFRS adoption on earnings quality of 1245 Canadian firms. I analyze the effects IFRS adoption on earnings persistence, earnings predictability, persistence of earnings components, cash flow predictability, accruals quality, value relevance, earnings smoothness, conservatism, and timeliness. I find that earnings quality of Canadian firms, on average, improves following the adoption and the improvements are mostly driven not by U.S. adopters but by IFRS adopters, suggesting that IFRS has a positive impact on earnings quality. Partitioning the sample, I find that firms with incentives for transparent reporting have stable earnings quality throughout the sample period whereas firms without such incentives show an improvement in earnings quality following the adoption. I also find that earnings quality declines to a greater degree for firms in extractive/high-litigation-risk industries relative to firms in non-extractive/low-litigation-risk industries. Further analyses reveal that (1) earnings quality seems to deteriorate for firms with intense reliance on fair value accounting after the adoption but not for firms with minimal reliance on fair value accounting, that (2) R&D intensive firms see some weak improvements in earnings quality following the adoption in comparison to non-R&D intensive firms, and that (3) IFRS adoption is associated with a greater improvement in earnings quality for loss firms than for profitable firms. Finally, the effects of IFRS seem unlikely to be uniform across different measures of earnings quality. Taken all together, the findings suggest that standard setters and researchers should probably not consider the effects of IFRS in isolation of firms' reporting incentives and that the SEC, that the Financial Accounting Standards Board's (FASB) concerns about the lack of implementation guidance in extractive and high-litigation-risk industries are warranted, and that fair value accounting is likely to be harmful to earnings quality.
When Canada already has a set of well- established legal enforcement and investor protection mechanism to control earnings management; and the quality of Canadian GAAP is high, I examine if the accounting quality for Canada can still be improved since its adoption of IFRS mandatorily in 2011. The extant literature argues that IFRS adoption benefits firms domiciled in countries with strong legal and financial institutions. However, when the quality of IFRS is as good as the local standards for many Anglo-Saxon countries such as Canada, it is questionable if these countries can still receive substantial economic consequences. Following the literature, I estimate a set of comprehensive measurements of earnings management as the proxies of accounting quality. Empirically, I document evidence that the results are mixed: while discretionary accruals have been improved, but not for Manage Earnings Towards Target (METT) and Timely Loss Recognition. Besides accounting standards, I also find that firms issuing more equities are motivated to associate with lower earnings quality. In addition, firms engaging in two distinct strategic directions (prospector vs. defender) have systemically dissimilar effects on earnings quality in IFRS adoption. Finally, I document evidence that firm value following IFRS adoption has been increased, but at the expense of lower accounting quality. Overall, my study shed some lights into the literature that accounting standards per se implemented in strong institutional setting is not sufficient to ensure a higher level of accounting quality; and firm-level earnings management motives are important factors too.
This study examines the impact of adopting International Financial Reporting Standards (IFRS) and the prior and superseded International Accounting Standards (IAS) on investor returns, the level of earnings management and the value relevance of accounting information in African capital markets. This study is motivated by the growing momentum of African countries adopting International Financial Reporting Standards (IFRS) for listed, cross listed or even unlisted companies. Prior to the adoption of IFRS, a high level of diversity existed in accounting standards between African countries. These differences consisted of the number of promulgated standards, conservatism of these standards, their completeness for potential accounting transactions, depth and guidelines on allowable measurement methods and disclosure requirements. First, this study empirically examines whether IFRS adoption has impacted investor returns through the informativeness of reported earnings and secondly, whether the level of discretionary earnings management as determined by several models and proxies has declined from the IFRS adoption. Thirdly, this study examines the changes in value relevance of accounting information from the migration to IFRS. This study finds significantly higher informativeness of reported earnings under IFRS for investor returns compared to earnings per share (EPS) reporting under local GAAP after controlling for confounding factors. This provides evidence for the valuation impact of IFRS adoption. Furthermore, this study finds evidence of significantly lower earnings management by firms using IFRS compared to firms utilizing local GAAP's. This lower earnings management by IFRS reporting firms is observed for both the use of discretionary accruals to manage earnings upwards and earnings smoothing. On the value relevance of financial statements, this study first, finds that accounting reports are value relevant in all African markets examined. In addition, IFRS adopted countries and those harmonizing closely with IFRS are found to have the highest value relevance. Furthermore, test of difference in value relevance in South Africa between IFRS and South African GAAP reporting firms shows significantly higher value relevance for IFRS accounting information. -- Abstract.
This paper primarily examines the effect of the mandatory International Financial Reporting Standards (IFRS) adoption in Canada by Canadian financial institutions. It is a comparative study between the Canadian GAAP financial reporting from 2008 to 2010 and IFRS financial reporting from 2011 to 2012. Since this research is an empirical study, the quantitative research method is applied. The research question for this research study is: Does IFRS adoption influence financial reporting? This research finds that earnings quality has increased due to an increase in value relevance (earnings influence to market price), increase in persistency and predictability in earnings and cash flows, increased influence of earnings to shareholder value, and increase in accruals and timeliness loss of recognition (reduce in income smoothing). However, it also finds that valuation usefulness of earnings to book value per share (accounting valuation) has reduced.
This study investigates whether mandatory adoption of International Financial Reporting Standards (IFRS) in Canada resulted in capital market benefits from enhanced financial reporting quality. We examine the effects of implementing IFRS for financial statements of the largest Canadian firms (S&P/TSX 60) listed on the Toronto Stock Exchange (TSX). We compare accounting numbers reported under pre-changeover Canadian GAAP (CGAAP) with those under IFRS for the same period, and document how IFRS adoption changes key accounting measures and financial ratios. Significant accounting standard differences between two accounting frameworks having direct impact on financial measures in transition to IFRS are analyzed. Our analysis was also separately performed for companies representing Basic Materials and Energy and the Financial Services sectors because of the large concentration of companies engaged in these industries in our sample, finding that significant effects of adopting IFRS are associated with industry practices. The empirical results show that the adoption of IFRS in Canada improved the relevancy of financial reporting as gauged by the association between book value of equity and net income with the market value of company shares in the post-adoption periods. The study should be of interest to U.S. regulators considering IFRS adoption by U.S. publicly traded companies as well as to regulators, standard setters and listed companies in all countries worldwide that are in transition to IFRS.
This study is motivated by the growing momentum of African countries adopting International Financial Reporting Standards (IFRS) by listed, cross-listed and even some unlisted companies. The study empirically examines whether IFRS adoption has impacted investor returns, the decline in discretionary earnings management and the changes in value relevance of accounting information. We find significantly higher informativeness of earnings per share (EPS) under IFRS for investor returns compared to EPS under local Generally Accepted Accounting Principles (GAAP) after controlling for confounding factors. This provides evidence for the value relevance of IFRS adoption and significantly lower earnings management by firms using IFRS compared to firms using local GAAPs.
Previous studies suggest that firm-level reporting incentives play a significant role for heterogeneous effects on the adoption of International Financial Reporting Standards (IFRS) (e.g., Daske et al., 2013; Ball et al., 2003; Leuz et al., 2003; Burgstahler et al., 2006). In this study, we focus on family ownership control, which arguably creates severe agency problems between controlling and minority shareholders as well as weaker incentives for quality financial reporting and transparency. We examine whether the effect of full IFRS adoption on accounting quality and market liquidity is significantly mitigated by family control by comparing accounting quality metrics and market liquidity metrics between family-controlled and non-family-controlled firms listed in Hong Kong for the period before mandatory IFRS adoption and the period after adoption. We show that accounting quality and market liquidity generally improve after full IFRS adoption. However, when we take into consideration of family control, higher accounting quality in the post-IFRS period is only substantiated in the non-family-controlled firms. The accounting quality actually gets worse in the post-IFRS period for family-controlled firms. We also find that improvements in market liquidity after the adoption of IFRS are moderated by family control. The results indicate that the expected benefits of IFRS adoption are realised in non-family-controlled firms, but such desirable outcomes are severely moderated by family ownership control. Given that family control is a common phenomenon in Asia and other emerging economies, our findings are useful for policy makers and investors to better understand the impact of IFRS adoption.
This study investigates the effect of a security regulation that occurs concomitantly with International Financial Reporting Standards (IFRS) adoption on the information content of earnings announcements in Italy. To identify the effect of this regulation, we use a treatment (i.e., Italy) and a benchmark sample of IFRS countries that vary in the adoption of the security regulation, but are similar to Italy along a set of institutional dimensions. We find that the information content of earnings announcements increases after year 2005. This increase, however, is more pronounced in Italy. Corroborating the effects of the security regulation, we hand-collect and analyze non-earnings disclosures in 2,106 earnings announcement press releases. Our findings suggest that the inclusion of detailed IFRS financial statements in earnings announcements increased significantly only in Italy, and this explains the increased informativeness of IFRS earnings announcements. Our findings contribute to the recent literature suggesting that there are other complementary changes concurrent with IFRS that are necessary to confer capital market benefits.