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Secrecy and the impact of mandatory IFRS adoption on earnings quality in Europe

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  • Houqe, Muhammad Nurul
  • Monem, Reza M.
  • Tareq, Mohammad
  • van Zijl, Tony

Abstract

This study examines how differences in national culture, as indicated by financial secrecy, affect the impact of mandatory adoption of IFRS on earnings quality across the countries of Europe. Using 24,034 firm-year observations from 16 European countries over the period 1998–2014, we find that the higher the level of secrecy in a country the lower the level of earnings quality of firms, as measured by signed abnormal accruals. We find that mandatory adoption of IFRS improves earnings quality in all countries. However, our study indicates that the impact of mandatory adoption of IFRS on earnings quality is stronger the higher the level of secrecy in a country. Our evidence thus helps to explain the different impacts of IFRS adoption on earnings quality across different jurisdictions.

Suggested Citation

  • Houqe, Muhammad Nurul & Monem, Reza M. & Tareq, Mohammad & van Zijl, Tony, 2016. "Secrecy and the impact of mandatory IFRS adoption on earnings quality in Europe," Pacific-Basin Finance Journal, Elsevier, vol. 40(PB), pages 476-490.
    • Handle: RePEc:eee:pacfin:v:40:y:2016:i:pb:p:476-490
    DOI: 10.1016/j.pacfin.2016.08.002
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