Do IFRS Promote Transparency? Evidence from the Bankruptcy Prediction of Privately Held Swedish and Norwegian Companies

Abstract

The purpose of our paper is to investigate whether any differences between International Financial Reporting Standards (IFRS) and local Generally Accepted Accounting Principles (GAAP) impact the transparency of financial reporting of non-listed companies through bankruptcy prediction. This contributes to extant research that has focused on the effects of IFRS adoption in the context of listed companies. For our investigation, we used logistic regression, well-established accounting-based predictors, and a sample of financial statements from privately held Swedish companies using IFRS, and Norwegian companies using Norwegian GAAP. The results indicate that financial statements made under IFRS may be better suited for bankruptcy prediction than those made under Norwegian GAAP. Our findings suggest that the use of IFRS could aid in increasing the informativeness of financial reports by promoting transparency and prevent managers of firms facing insolvency from engaging in creative accounting practices. Our results should, however, be applied with caution, as they may be due to the differences in characteristics across firms that are not captured by our research design. We leave this issue open to future research.

Foreign Direct Investment in GCC Countries: The Essential Influence of Governance and the Adoption of IFRS

“…Many studies have recognized the significant positive effect of IFRS on increasing FDI inflows across different economic and geographical peripheries (Márquez-Ramos 2011; Gordon et al 2012;Chen et al 2014;Daskalopoulos et al 2016;Kainth and Wahlstrøm 2021). However, the effect of IFRS adoption is dependent on the economic status of each country.…”

Accounting Harmonisation through IAS/IFRS and Internationalisation: Evidence from FDIs and Cross-Border M&A

“…As stated by previous research, the IAS/IFRS are in general of higher quality than the local GAAP (Barth et al, 2008;Ebaid, 2016;Key & Kim, 2020). This higher quality should translate into higher understandability and transparency in financial information, allowing for the better understanding of the economic feature underlying the companies (Barth et al, 2012;Bhat et al, 2016;Kainth & Wahlstrøm, 2021) and increasing the comparability of the information (Cascino & Gassen, 2015). Moreover, the use of well-known accounting standards can increase foreign investor's confidence in their ability to assess the market and thus can lead them to invest more (Amiram, 2012).…”

“…Academic literature has brought attention to investigating the effects of accounting harmonisation through the spread of IAS/IFRS. Some scholars outlined an increase in comparability and transparency of information (Barth et al, 2012;Cascino & Gassen, 2015;Kainth & Wahlstrøm, 2021), while others show how the adoption of the IAS/IFRS improved the liquidity in the financial market (Coyring et al, 2007;Istiningrum, 2020). Still others underline beneficial such as the reduction of the cost of debt (Ozkaya, 2018) and the cost of equity (Li, 2010;de Moura et al, 2020).…”

Company liquidity as a reflection of receivables and payables management

“…The following information is provided by the authors: Zalai, 2016; Miah, 2021;Jakubec & Kardoš, 2016;Roca, 2021;Oreský & Rehák 2019;Vlachynský et al, 2009;Wijekoon et al, 2021;Fabus, 2015;Lombardi, et al, 2020;Kajanová, 2014;Mládek, 2005;Miah et al, 2021, Štangová & Hajduchová, 2010Savina et al, 2021;Kajanová et al, 2014. Management of receivables and payables for the company means the financial health of the company, which will ensure the long-term operation of the company. The authors wrote about this idea in their publications: Daniel, 2013;Frintrup, et al, 2020;Gernon & Meek, 2001;Horváthová et al, 2016;Hillebrandt, M. & Leino-Sandberg, 2021;Kainth & Wahlstrom, 2021;Kotulič et al, 2018;Majduchová & Neumannová, 2008;Tumpach, 2006;Majduchova et al, 2020;Pavic, 2020;Riahi-Belkaoui, 2000;Šlosárová & Blahušiaková, 2020;Suhányiová & Fabian, 2010;Suhányiová, et al, 2016;Suhányiová, 2009;Suhányiová, 2011;Silva et al 2021aSilva et al , 2021b.…”