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Earnings management and derivatives reporting: evidence from the adoption of IFRS standards in Europe

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  • Julien Cadot
  • Amir Rezaee
  • Rebecca Benaïs Chemama

Abstract

Although the new IFRS standards are considered an improvement for financial transparency, derivatives reporting remains subject to criticism by professional observers due to its complexity. Indeed, derivatives reporting could easily be used for earnings management. In this article, we analyse half a dozen earnings management proxies before and after the mandatory adoption of a battery of IFRS standards in 2013 and 2014 by European firms. Among others, IFRS 13 and IFRS 11 featured impactful requirements for the financial reporting of listed companies. Our results show that following the adoption of these standards, earnings management has faded except for firms using derivatives. These results suggest that the 2013–2014 IFRS standards package has improved the accounting quality of European-listed firms but that the flexibility and lack of guidance in the new standards regarding derivatives reporting are used by managers to manage earnings.

Suggested Citation

  • Julien Cadot & Amir Rezaee & Rebecca Benaïs Chemama, 2021. "Earnings management and derivatives reporting: evidence from the adoption of IFRS standards in Europe," Applied Economics, Taylor & Francis Journals, vol. 53(14), pages 1628-1637, March.
    • Handle: RePEc:taf:applec:v:53:y:2021:i:14:p:1628-1637
    DOI: 10.1080/00036846.2020.1841085
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    Cited by:

    1. Mahdi Salehi & Grzegorz Zimon & Hayder Adnan Hashim & Ryszard Jędrzejczak & Adam Sadowski, 2022. "Accounting Quality and Audit Attributes on the Stock Price Crashes in an Emerging Market," Risks, MDPI, vol. 10(10), pages 1-24, October.

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