Spillover effects of public firms‘ mandatory IFRS adoption on private firms
Final Report Abstract
The mandatory adoption of International Financial Reporting Standards (IFRS) represents one of the most important regulatory changes in accounting history so far and has received a lot of attention in the literature. The consequences of this regulatory change are extensive and can even spill over to firms that are not required to adopt IFRS. Effects on this economically very relevant group of mainly private firms are basically unexplored in the literature. This study fills the gap in the literature and examines the spillover effects of the mandatory IFRS adoption on non-adopting firms. Non-adopting firms are subject to a changed information environment after the adoption and can benefit from the new information in their adopting peers’ IFRS financial statements but may also suffer from reduced comparability with their own local GAAP statements. Assuming that the altered information environment changes firms’ ability to evaluate their competitors’ investment behavior, I expect non-adopting firms to adjust their own investment decisions accordingly. The setting for my analysis is the mandatory adoption of IFRS within the European Union in the year 2005. To examine possible spillover effects, I test whether the investment efficiency of non-adopting firms changed after their competitors’ adoption. In order to take the differences in comparability between local accounting standards and IFRS into account, I investigate the relation between the change in investment efficiency and the change in comparability before and after the mandatory adoption. A considerable part of this research design was developed during my research visit at the University of North Carolina (UNC). The visit gave me the opportunity to discuss my research proposal and design ideas with some of the main experts in the field. I got valuable feedback from the UNC faculty which substantially improved my research strategy. A surprise during my research visit was the unavailability of the necessary data in the UNC databases. Hence, I was not yet able to execute the tests and generate results. However, I developed new ideas how to get access to the data and am confident that I can successfully continue with the project in the near future. Despite the unexpected unavailability of the data, the research visit was very important for the progress of my project and resulted in a well-founded theoretical basis and more sophisticated research design. Depending on the results, this study contributes to different streams of literature, particularly the unintended consequences of the mandatory IFRS adoption and the comparability of different accounting standards. To assess the overall economy-wide costs and benefits of reporting regulation, it is important to consider effects of the mandatory IFRS adoption on the economically important group of mainly private nonadopting firms. Hence, my results can be relevant for standard setters and policy makers, demonstrating the far-reaching effects of accounting regulation.
