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What drives the comparability effect of mandatory IFRS adoption?

Author

Listed:
  • Stefano Cascino

    (London School of Economics)

  • Joachim Gassen

    (Humboldt-Universität zu Berlin)

Abstract

We investigate the effects of mandatory International Financial Reporting Standards (IFRS) adoption on the comparability of financial accounting information. Using a set of alternative comparability measures, our results suggest that the overall comparability effect of mandatory IFRS adoption is marginal. We hypothesize that firm-level heterogeneity in IFRS compliance explains the limited comparability effect. To test this conjecture, we first hand-collect data on IFRS compliance for a sample of German and Italian firms and find that firm-, region-, and country-level incentives systematically shape IFRS compliance. We then use these compliance determinants to explain the variance in the comparability effect of mandatory IFRS adoption and find that only firms with high compliance incentives experience substantial increases in comparability. Moreover, we document that firms from countries with tighter reporting enforcement experience larger IFRS comparability effects, and that public firms adopting IFRS become less comparable to local GAAP private firms from the same country.

Suggested Citation

  • Stefano Cascino & Joachim Gassen, 2015. "What drives the comparability effect of mandatory IFRS adoption?," Review of Accounting Studies, Springer, vol. 20(1), pages 242-282, March.
    • Handle: RePEc:spr:reaccs:v:20:y:2015:i:1:d:10.1007_s11142-014-9296-5
    DOI: 10.1007/s11142-014-9296-5
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    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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