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Earnings management under German GAAP versus IFRS


  • Brenda van Tendeloo
  • Ann Vanstraelen


This paper addresses the question whether voluntary adoption of International Financial Reporting Standards (IFRS) is associated with lower earnings management. Ball et al. (Journal of Accounting and Economics, 36(1-3), pp. 235-270, 2003) argue that adopting high quality standards might be a necessary condition for high quality information, but not necessarily a sufficient one. In Germany, a code-law country with low investor protection rights, a relatively large number of companies have chosen to voluntarily adopt IFRS prior to 2005. We investigate whether German companies that have adopted IFRS engage significantly less in earnings management compared to German companies reporting under German generally accepted accounting principles (GAAP), while controlling for other differences in earnings management incentives. Our sample, consisting of German listed companies, contains 636 firm-year observations relating to the period 1999-2001. Our results suggest that IFRS-adopters do not present different earnings management behavior compared to companies reporting under German GAAP. These findings contribute to the current debate on whether high quality standards are sufficient and effective in countries with weak investor protection rights. They indicate that voluntary adopters of IFRS in Germany cannot be associated with lower earnings management.

Suggested Citation

  • 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.
  • Handle: RePEc:taf:euract:v:14:y:2005:i:1:p:155-180
    DOI: 10.1080/0963818042000338988

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    References listed on IDEAS

    1. Maijoor Steven & Vanstraelen Ann, 2002. "Earnings Management: The Effects of National Audit Environment, Audit Quality and International Capital Markets," Research Memorandum 070, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
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