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Does the Introduction of IFRS Change the Timeliness of Loss Recognition? Evidence from German Firms

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Abstract

In this paper, we re-evaluate the hypothesis that the introduction of the IFRS has an impact on the timeliness of loss recognition. We test this hypothesis in a data set of public German firms that report according to German-GAAP and IFRS, respectively. The parallel use of the two accounting standards in Germany provides a unique opportunity to contribute to the academic discussion, as well as to the current policy debate on regulatory reform in Germany. Starting from the standard time series concept of conditional conservatism that was initially proposed by Basu (1997), we implement a wide range of test specifications, including (i) a threshold unit-root test specification; (ii) a multivariate approach to outlier detection and (iii) various forms of controlling for fixed effects. We do not find evidence that IFRS and German-GAAP firms differ with respect to their timeliness of loss recognition in any of these specifications - a result that appears surprising in light of the more prudent regulation in the German-GAAP, but is consistent with some earlier findings in the literature.

Suggested Citation

  • Sebastian Brauer & Carl-Friedrich Leuschner & Frank Westermann, 2011. "Does the Introduction of IFRS Change the Timeliness of Loss Recognition? Evidence from German Firms," Working Papers 87, Institute of Empirical Economic Research, Osnabrueck University.
  • Handle: RePEc:iee:wpaper:wp0087
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    File URL: http://web.fb9.uni-osnabrueck.de/repec/iee/wpaper/13183227_WP_87.pdf
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    1. Ding, Yuan & Jeanjean, Thomas & Stolowy, Herve, 2005. "Why do national GAAP differ from IAS? The role of culture," The International Journal of Accounting, Elsevier, vol. 40(4), pages 325-350.
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    3. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
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    5. Ding, Yuan & Jeanjean, Thomas & Stolowy, Herve, 2005. "Reply to discussion of "Why do national GAAP differ from IAS? The role of culture"," The International Journal of Accounting, Elsevier, vol. 40(4), pages 359-362.
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    7. Ding, Yuan & Hope, Ole-Kristian & Jeanjean, Thomas & Stolowy, Herve, 2007. "Differences between domestic accounting standards and IAS: Measurement, determinants and implications," Journal of Accounting and Public Policy, Elsevier, vol. 26(1), pages 1-38.
    8. Basu, Sudipta, 1997. "The conservatism principle and the asymmetric timeliness of earnings," Journal of Accounting and Economics, Elsevier, vol. 24(1), pages 3-37, December.
    9. Ball, Ray & Shivakumar, Lakshmanan, 2005. "Earnings quality in UK private firms: comparative loss recognition timeliness," Journal of Accounting and Economics, Elsevier, vol. 39(1), pages 83-128, February.
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    11. Ball, Ray & Robin, Ashok & Wu, Joanna Shuang, 2003. "Incentives versus standards: properties of accounting income in four East Asian countries," Journal of Accounting and Economics, Elsevier, vol. 36(1-3), pages 235-270, December.
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    Keywords

    IFRS; German-GAAP; Timely loss recognition; Conservatism;

    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
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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