Restatements and accounting quality: a comparison between IFRS and US-GAAP

El-Gazzar, Samir M.; Finn, Philip M.

doi:10.1108/jfra-10-2015-0090

Cited by 10 publications

(4 citation statements)

References 42 publications

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“…However, after eliminating observations from regulated industries, with concurrent earnings announcements, or with missing data, we are left with 2,103 observations. Finally, following prior studies (Eng et al, 2008;El-Gazzar and Finn, 2017), we match the foreign firms with corresponding US domestic firms based on industry and firm size. The final sample includes 364 firm-year observations for H1.…”

Section: Data and Samplementioning

confidence: 99%

Equal opportunity market

Bannister

Song

2019

RAF

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Purpose This paper aims to compare US market reactions to the restatement announcements of foreign firms listed in the USA and those of US firms by applying the Capital Market Liability of Foreignness (CMLOF) concept. It further investigates the incremental effect of an improved information environment, proxied by analyst following, on mitigating the negative market reaction to a restatement for foreign vs domestic firms. Design/methodology/approach Regression tests are performed on a matched-sample, which matches foreign and domestic firms based on industry and firm size. Market reaction is defined as three-day abnormal stock returns calculated using a market model. The sources of CMLOF are defined as institutional distance, information costs, unfamiliarity costs and cultural distance. Findings Results suggest that, on average, the magnitude of the market reaction to a restatement is 1.8 per cent lower for foreign firms than for domestic firms. Information and unfamiliarity costs contribute to the differing market reactions. In addition, it appears that the improved information environment created by a higher analyst following is more important for foreign firms who face CMLOF than for domestic firms. Originality/value While prior research establishes a negative market reaction to restatement announcements, comparing the market reactions for foreign and domestic firms provides evidence regarding whether US investors treat foreign and domestic firms differently. Additionally, to the best of the authors’ knowledge, this is the first study that examines CMLOF using restatement announcements.

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Section: Data and Samplementioning

confidence: 99%

Equal opportunity market

Bannister

Song

2019

RAF

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“…Indeed, investors expect lower rates of errors and fraud when firms use US GAAP than IFRS. El-Gazzar and Finn (2017), for example, find different market reactions to the restatement surprise by US GAAP firms compared with IFRS firms. Their findings suggest that the use of IFRS by US firms does not result in significantly different financial reporting quality than US GAAP.…”

Section: Introductionmentioning

confidence: 99%

The relationship between financial reporting standards and accounting irregularities: evidence from US banks

Uymaz

Altunbaş

Akgün

2021

JFC

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Purpose The purpose of this paper is to explore whether the choice of International Financial Reporting Standards (IFRS) vs Generally Accepted Accounting Principles (GAAP) is associated with the frequency and likelihood of accounting irregularities and fraud in US banks. Design/methodology/approach The authors examine the relationship between financial reporting standards and accounting irregularities in publicly listed US banks. Using a sample of 4,284 banks with accounting irregularities observed in the USA over the period of 1996–2014. They used logit model to estimate the likelihood of corporate misreporting having been committed in terms of accounting irregularities. Findings The authors show that banks that use US GAAP exhibit better operating performance than fraudulent banks that use IFRS except for certain variables. They also find that fraudulent banks are more likely to commit accounting irregularities when they have to follow IFRS and banks have relatively better bank performance. Practical implications Overall, the empirical findings result consistent with Kohlbeck and Warfield’s (2010) find that accounting standards are linked to fewer accounting irregularities. Originality/value In this study, accounting irregularities have a significant effect on bank performance during the Dodd–Frank period. It finds that banks that choose to use IFRS are more likely to have accounting irregularities and to engage in fraud.

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“…However, the key question ishow do inferior financial reporting and accounting quality explain the recurrence of these stock market phenomena? Supporters of the IFRS argue that quality reporting resulting from mandating the application of IFRS could improve reporting transparency and information symmetry between users of financial reports (Ahmed et al, 2013b;Horton et al, 2013;Hong et al, 2014;El-Gazzar and Finn, 2017;Ugrin et al, 2017;Ricketts et al, 2018;Amidu and Issahaku, 2019;El-Diftar and Elkalla, 2019;Ayadi et al, 2020;Hlel et al, 2020;Lakhal and Dedaj, 2020). IFRS-IPO research empirically established that in the primary market [1], the IFRS mandate enhanced IPO corporations' information quality by discouraging managers' liberty in self-selecting accounting principles, improved reporting quality in IPO prospectuses and enhanced information symmetry among IPO participants, thus alleviating underpricing (Otero and Enríquez, 2012;Hong et al, 2014).…”

Section: Introductionmentioning

confidence: 99%

The short- and long-lived effects of IFRS mandate on IPO firms in emerging market economies

Jamaani

Alidarous

2021

JFRA

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Purpose This study aims to examine the short- and long-lived effects of the International Financial Reporting Standards (IFRS) mandate on the quality of reporting information of initial public offering (IPO) firms in emerging market economies. Design/methodology/approach The study used several difference-in-differences models for a sample comprising 102 Saudi Arabian IPO firms for 2003–2017. Findings It found that mandating the application of the IFRS had a significant short-lived but no long-lived effect on IPO firms’ information asymmetry. When information asymmetry was high such as in the primary market, the IFRS succeeded in alleviating the underpricing of IPO firms. Conversely, in the secondary market, with negligible information asymmetry, the IFRS was not beneficial for the long-term performance of companies in the IPO market. Originality/value This study is the first of its kind in the emerging market context and has important implications for IPO investors and analysts, IFRS-IPO researchers and policymakers in emerging economies. The results empirically confirmed that the IFRS mandate had solely a short-lived effect and no long-lasting impact, on the problem of asymmetric information in the IPO market. The effectiveness of the IFRS in producing quality financial reporting is contingent upon large-scale information asymmetry and vanishes when investors and analysts have abundant information about listed firms, even for emerging economies such as Saudi Arabia.

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Restatements and accounting quality: a comparison between IFRS and US-GAAP

Cited by 10 publications

References 42 publications

Equal opportunity market

Equal opportunity market

The relationship between financial reporting standards and accounting irregularities: evidence from US banks

The short- and long-lived effects of IFRS mandate on IPO firms in emerging market economies

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