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Mandatory IFRS adoption and the cost of debt in Italy and UK

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  • Nicola Moscariello
  • Len Skerratt
  • Michele Pizzo

Abstract

This paper analyses the effect of the mandatory adoption of International Financial Reporting Standards (IFRS) within the EU on the cost of corporate debt. In order to avoid the imprecision involved in a large-scale cross-country study, we examine the impact of IFRS in two very clearly different institutional settings, the UK and Italy. The UK is a common-law country characterised by strong enforcement and national generally accepted accounting principles (GAAP) which are equivalent to IFRS. Italy is a typical European code-law country, characterised by a weak outside investor protection system, and national GAAP significantly different from the IFRS model. No IFRS effect is observed in the UK, consistent with it having standards which are close to IFRS. During the post-IFRS period, in Italy more weight is placed on the accounting numbers to assess the cost of debt. We also find that accruals quality improves in Italy, thus suggesting that public financial reporting data are enhanced relative to privately held information about borrowers' credit ratings.

Suggested Citation

  • Nicola Moscariello & Len Skerratt & Michele Pizzo, 2014. "Mandatory IFRS adoption and the cost of debt in Italy and UK," Accounting and Business Research, Taylor & Francis Journals, vol. 44(1), pages 63-82, February.
    • Handle: RePEc:taf:acctbr:v:44:y:2014:i:1:p:63-82
    DOI: 10.1080/00014788.2013.867402
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    5. Eliwa, Yasser & Aboud, Ahmed & Saleh, Ahmed, 2021. "ESG practices and the cost of debt: Evidence from EU countries," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 79(C).
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    7. Petaibanlue, Jirada & Walker, Martin & Lee, Edward, 2015. "When did analyst forecast accuracy benefit from increased cross-border comparability following IFRS adoption in the EU?," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 278-291.
    8. Solomon Opare & Muhammad Nurul Houqe & Tony van Zijl, 2021. "Meta‐analysis of the Impact of Adoption of IFRS on Financial Reporting Comparability, Market Liquidity, and Cost of Capital," Abacus, Accounting Foundation, University of Sydney, vol. 57(3), pages 502-556, September.
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