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The Role of Firm-Specific Incentives and Country Factors in Explaining Voluntary IAS Adoptions: Evidence from Private Firms

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  • Jere Francis
  • Inder Khurana
  • Xiumin Martin
  • Raynolde Pereira
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    Abstract

    This paper investigates voluntary adoptions of International Accounting Standards (IAS) by private enterprises, and builds on prior research which posits that higher quality financial reports through IAS adoption can reduce information asymmetry and facilitate contracting with external parties. Specifically, we pursue the following questions. First, do firm-specific incentives matter in the IAS adoption decision after controlling for country-level institutional factors? Second, does the relative importance of firm vs. country factors vary across institutional settings? Using a sample of 3,722 small and medium-sized private enterprises from 56 countries, we report two primary findings. First, both firm and country factors matter in the voluntary IAS adoption decision. Second, when we focus on sub-samples of countries partitioned by the level of economic development, we find that firm factors dominate country factors in more developed countries, while in less developed countries, country factors dominate firm factors in explaining IAS adoptions. This result is consistent with the argument in Doidge et al. (Journal of Financial Economics, 86(1), pp. 1-39, 2007) that firm incentives are more important in explaining governance choices (including accounting) in more developed countries where the benefits from better governance are more likely to exceed the attendant costs. Collectively, our results suggest that less developed countries can enhance the benefits from IAS adoptions by developing institutions which facilitate private contracting.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/09638180701819899
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal European Accounting Review.

    Volume (Year): 17 (2008)
    Issue (Month): 2 ()
    Pages: 331-360

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    Handle: RePEc:taf:euract:v:17:y:2008:i:2:p:331-360

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    Web page: http://www.tandfonline.com/REAR20

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    Cited by:
    1. Paul André & Peter Walton & Dan Yang, 2012. "Voluntary adoption of IFRS: A study of determinants for UK unlisted firms," Post-Print hal-00935013, HAL.
    2. Windsor, Duane, 2009. "Tightening corporate governance," Journal of International Management, Elsevier, vol. 15(3), pages 306-316, September.
    3. Isidro, Helena & Raonic, Ivana, 2012. "Firm incentives, institutional complexity and the quality of “harmonized” accounting numbers," The International Journal of Accounting, Elsevier, vol. 47(4), pages 407-436.
    4. Guerreiro, Marta Silva & Rodrigues, Lúcia Lima & Craig, Russell, 2012. "Voluntary adoption of International Financial Reporting Standards by large unlisted companies in Portugal – Institutional logics and strategic responses," Accounting, Organizations and Society, Elsevier, vol. 37(7), pages 482-499.

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