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Intended and Unintended Consequences of Mandatory IFRS Adoption: A Review of Extant Evidence and Suggestions for Future Research

Author

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  • Ulf Br&?ggemann
  • J?rg-Markus Hitz
  • Thorsten Sellhorn

Abstract

This paper discusses empirical evidence on the economic consequences of mandatory International Financial Reporting Standards (IFRS) adoption in the European Union (EU), and provides suggestions on how future research can add to our understanding of these effects. Based on the stated objectives of the EU's so-called ‘IAS Regulation’, we distinguish between intended and unintended consequences of mandatory IFRS adoption. Empirical research on the intended consequences generally fails to document an increase in the comparability or transparency of financial statements. In contrast, there is rich and almost unanimous evidence of positive effects on capital markets and at the macroeconomic level. We argue that certain research design issues are likely to contribute to this apparent mismatch in findings. The literature investigating unintended consequences of mandatory IFRS adoption is still in its infancy. However, extant empirical evidence and insights from non-IFRS settings suggest that mandatory IFRS adoption has the potential to materially affect contractual outcomes. We conclude that both the intended and the unintended consequences deserve further scrutiny to assess the costs and benefits of mandatory IFRS adoption, and we provide specific guidance for future research.

Suggested Citation

  • Ulf Br&?ggemann & J?rg-Markus Hitz & Thorsten Sellhorn, 2013. "Intended and Unintended Consequences of Mandatory IFRS Adoption: A Review of Extant Evidence and Suggestions for Future Research," European Accounting Review, Taylor & Francis Journals, vol. 22(1), pages 1-37, May.
  • Handle: RePEc:taf:euract:v:22:y:2013:i:1:p:1-37
    DOI: 10.1080/09638180.2012.718487
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    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law
    • 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

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