The effect of IAS/IFRS adoption on earnings management (smoothing): A closer look at competing explanations

Vedran Capkun; Dan Collins; Thomas Jeanjean; Daniel W Collins

doi:10.1016/j.jaccpubpol.2016.04.002

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The effect of IAS/IFRS adoption on earnings management (smoothing): A closer look at competing explanations

Journal article

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The effect of IAS/IFRS adoption on earnings management (smoothing): A closer look at competing explanations

Vedran Capkun, Dan Collins, Thomas Jeanjean and Daniel W Collins

Journal of accounting and public policy, Vol.35(4), pp.352-394

07/01/2016

DOI: 10.1016/j.jaccpubpol.2016.04.002

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Abstract

Prior research provides mixed evidence on whether the transition to IAS/IFRS deters or contributes to greater earnings management (smoothing). The dominant explanation for the conflicting results is self-selection. Early voluntary adopters had incentives to increase the transparency of their reporting in order to attract outside capital, while those firms that waited until IFRS adoption became mandatory in EU countries lacked incentives for transparent reporting leading to increases in earnings management (smoothing) after IFRS adoption. We maintain that the IFRS standards that went into effect in 2005 provide greater flexibility of accounting choices because of vague criteria, overt and covert options, and subjective estimates. This greater flexibility coupled with the lack of clear guidance on how to implement these new standards has led to greater earnings management (smoothing). Consistent with this view, we find an increase in earnings management (smoothing) from pre-2005 to post-2005 for firms in countries that allowed early IAS/IFRS adoption, as well as for firms in countries that did not allow early IFRS adoption. We find no evidence of changes in incentives that can explain these results. (C) 2016 Elsevier Inc. All rights reserved.

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Details

Title: Subtitle: The effect of IAS/IFRS adoption on earnings management (smoothing): A closer look at competing explanations
Creators: Vedran Capkun - HEC Paris
Dan Collins - University of Iowa
Thomas Jeanjean - École Supérieure des Sciences Économiques et Commerciales
Daniel W Collins - Accounting
Resource Type: Journal article
Publication Details: Journal of accounting and public policy, Vol.35(4), pp.352-394
DOI: 10.1016/j.jaccpubpol.2016.04.002
ISSN: 0278-4254
eISSN: 1873-2070
Publisher: Elsevier
Number of pages: 43
Grant note: HEC Paris ANR-11-IDEX-0003/Labex EcodeciANR-11-LABX-0047 / Foundation HEC, Investissements d'Avenir; Agence Nationale de la Recherche (ANR)
Language: English
Date published: 07/01/2016
Academic Unit: Accounting
Record Identifier: 9984962891102771

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