IFRS adoption, reporting incentives and financial reporting quality in private firms

Abstract

This study examines financial reporting quality (FRQ) effects around voluntary International Financial Reporting Standards (IFRS) adoptions by German private firms across two important dimensions, earnings quality and disclosure practices. To capture differences in the motivations for IFRS adoptions, we identify four different types of IFRS adopting firms based on a comprehensive set of firm characteristics. We observe earnings quality improvements around IFRS adoptions primarily for one type of firm, which is young, fast growing and seeking access to public equity markets. Using a matched sample of private German GAAP and IFRS reporting firms, we find some evidence suggesting that IFRS also contribute to higher earnings quality. Recognizing that our earnings quality metrics are only incomplete measures of FRQ, we also compare the disclosure practices of IFRS and German GAAP firms. We find that all IFRS firm types disclose significantly more information in their financial reports and show a higher propensity to publish their financial reports voluntarily on the corporate website. Our findings indicate that failure to identify earnings quality changes around IFRS adoption cannot be automatically interpreted as IFRS adoption having no effect on the FRQ of (private) firms. Collectively, our results suggest that both incentives and accounting standards shape private firms’ FRQ.

The effects of stricter regulation on the going public decision of small and knowledge‐intensive firms

“…For instance, White, Lee, and Tower () find that Australian biotech firms generally disclose less about intangible assets in their annual reports than could be expected. Bassemir and Novotny‐Farkas () find that financial reporting quality of young, fast growing firms that seek access to public equity markets improves around stricter accounting norms. As such, Bukh, Nielsen, Gormsen, and Mouritsen () find that Danish IT and pharmaceutical firms disclose more information on intellectual capital in Danish IPO prospectuses.…”

The Effect of the German Accounting Law Modernization Act on the Comparability of Private Local GAAP and IFRS Firms

“…9 Since this literature focuses on listed firms in an international setting, and recent input-based comparability studies even cast doubt on these results Nobes 2010, 2012), it is unclear whether comparability increases upon standards convergence are present for private German firms. These firms' accounting regime choice has already been investigated in general (Bassemir 2012), for price-regulated industries (Pierk and Weil 2014), and linked to other earnings quality metrics than comparability (Bassemir and Nowotny-Farkas 2015). However, de facto comparability upon accounting standards adoption of private German firms has not been addressed by researchers thus far.…”

Financial Reporting in Non-listed Family Firms: Insights from Interviews with CFOs

“…The empirical evidence shows that most non-listed firms are reluctant to adopt IFRS voluntarily. According to Bassemir (2018) and Bassemir and Novotny-Farkas (2018), until 2011 only 12% of all German non-listed firms that prepared consoli-(i.e., there is no elimination of group-internal transactions and profits), and the companies do not generate monthly balance sheets. 32 Firms that opt for IFRS must use the "full version" of IFRS; § 315a HGB does not allow the application of the IFRS for Small and Medium Sized Entities (SMEs).…”

“…34 In line with these studies, within my sample only three firms adopted IFRS for their external reporting. These three firms conform to two types of IFRS adopters identified by Bassemir and Novotny-Farkas (2018): large, mature firms that want to tap the public debt market, and internationally oriented "reputation seekers". Two firms have yearly revenues in excess of one billion Euros, the third more than C 500 m. All three introduced IFRS more than 10 years ago.…”