Voluntary adoption of international financial reporting standards by private firms in the EU

This paper investigates the incentives of private firms to adopt IFRS voluntarily. Prior studies contend that the additional disclosure requirements and reduced managerial discretion in the use of accounting methods included in IFRS potentially leads to more credible and high quality accounting information compared to local GAAP. For a sample of continental European private firms, our research results document that internationalization increases the likelihood of IFRS adoption. Firms with foreign shareholders as well as firms with foreign subsidiaries to a larger extent apply IFRS. These results indicate that firms adopt IFRS to facilitate monitoring and to respond to pressures related to external contracting. The research findings also note a significant association between a firm's capital intensity and the propensity that firms use IFRS. We further notice that neither leverage nor profitability has a positive association with the adoption of IFRS.