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The persistence of earnings and earnings components after the adoption of IFRS

  • Leonidas C. Doukakis
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    Purpose – This paper seeks to examine the persistence of earnings and earnings components after the adoption of International Financial Reporting Standards (IFRS). Design/methodology/approach – The study analyses two years before and two years after the adoption of IFRS in order to examine whether the adoption of IFRS materially affects the persistence, as well as the explanatory power of earnings and earnings components. Findings – The results confirm that disaggregating reported earnings into operating income, non-operating income and extraordinary charge and credit, captures differences in the information content of the underlying events. Consequently, earnings disaggregation can be used to improve prediction of future profitability. The results suggest that IFRS measurement and reporting guidelines do not seem to improve the persistence of earnings and earnings components. Originality/value – This is the first study that examines whether the mandatory adoption of IFRS has an impact on the information content of earnings components for future profitability.

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    Article provided by Emerald Group Publishing in its journal Managerial Finance.

    Volume (Year): 36 (2010)
    Issue (Month): 11 (November)
    Pages: 969-980

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    Handle: RePEc:eme:mfipps:v:36:y:2010:i:11:p:969-980
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    1. Harris, Mary S. & Muller III, Karl A., 1999. "The market valuation of IAS versus US-GAAP accounting measures using Form 20-F reconciliations1," Journal of Accounting and Economics, Elsevier, vol. 26(1-3), pages 285-312, January.
    2. Brenda van Tendeloo & Ann Vanstraelen, 2005. "Earnings management under German GAAP versus IFRS," European Accounting Review, Taylor & Francis Journals, vol. 14(1), pages 155-180.
    3. Mary E. Barth & Wayne R. Landsman & Mark H. Lang, 2008. "International Accounting Standards and Accounting Quality," Journal of Accounting Research, Wiley Blackwell, vol. 46(3), pages 467-498, 06.
    4. Murphy, Ann B., 1999. "Firm Characteristics of Swiss Companies that Utilize International Accounting Standards," The International Journal of Accounting, Elsevier, vol. 34(1), pages 121-131.
    5. Papadaki, Afroditi, 2005. "Discussion of "Why do national GAAP differ from IAS? The role of culture"," The International Journal of Accounting, Elsevier, vol. 40(4), pages 351-358.
    6. Ding, Yuan & Hervé, Stolowy & Hope, Ole-Kristian & Jeanjean, Thomas, 2005. "Differences between domestic accounting standards and IAS: measurement, determinants and implications," Les Cahiers de Recherche 826, HEC Paris.
    7. Georgia Siougle, 2007. "Earnings Forecasts Disclosed in SEO Prospectuses: Evidence from an Emerging Market," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 6(3), pages 249-267, December.
    8. Holger Daske & Luzi Hail & Christian Leuz & Rodrigo Verdi, 2008. "Mandatory IFRS Reporting around the World: Early Evidence on the Economic Consequences," Journal of Accounting Research, Wiley Blackwell, vol. 46(5), pages 1085-1142, December.
    9. Ali, Ashiq & Zarowin, Paul, 1992. "Permanent versus transitory components of annual earnings and estimation error in earnings response coefficients," Journal of Accounting and Economics, Elsevier, vol. 15(2-3), pages 249-264, August.
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