The Role of Firm-Specific Incentives and Country Factors in Explaining Voluntary IAS Adoptions: Evidence from Private Firms

This paper investigates voluntary adoptions of International Accounting Standards (IAS) by private enterprises, and builds on prior research which posits that higher quality financial reports through IAS adoption can reduce information asymmetry and facilitate contracting with external parties. Spec...

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Veröffentlicht in:The European accounting review 2008-07, Vol.17 (2), p.331-360
Hauptverfasser: Francis, Jere R., Khurana, Inder K., Martin, Xiumin, Pereira, Raynolde
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container_title The European accounting review
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creator Francis, Jere R.
Khurana, Inder K.
Martin, Xiumin
Pereira, Raynolde
description This paper investigates voluntary adoptions of International Accounting Standards (IAS) by private enterprises, and builds on prior research which posits that higher quality financial reports through IAS adoption can reduce information asymmetry and facilitate contracting with external parties. Specifically, we pursue the following questions. First, do firm-specific incentives matter in the IAS adoption decision after controlling for country-level institutional factors? Second, does the relative importance of firm vs. country factors vary across institutional settings? Using a sample of 3,722 small and medium-sized private enterprises from 56 countries, we report two primary findings. First, both firm and country factors matter in the voluntary IAS adoption decision. Second, when we focus on sub-samples of countries partitioned by the level of economic development, we find that firm factors dominate country factors in more developed countries, while in less developed countries, country factors dominate firm factors in explaining IAS adoptions. This result is consistent with the argument in Doidge et al. (Journal of Financial Economics, 86(1), pp. 1-39, 2007 ) that firm incentives are more important in explaining governance choices (including accounting) in more developed countries where the benefits from better governance are more likely to exceed the attendant costs. Collectively, our results suggest that less developed countries can enhance the benefits from IAS adoptions by developing institutions which facilitate private contracting.
doi_str_mv 10.1080/09638180701819899
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source RePEc; Business Source Complete; Taylor & Francis Journals Complete
subjects Accounting methods
Corporate governance
Cross-national analysis
Decision making
Financial incentives
Financial reporting
Institutions
International accounting standards
International Financial Reporting Standards
Motivation
Private enterprise
Small and medium sized enterprises
Studies
title The Role of Firm-Specific Incentives and Country Factors in Explaining Voluntary IAS Adoptions: Evidence from Private Firms
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