REVISION: Mandatory IFRS Reporting and Changes in Enforcement
Date Posted: Mar 05, 2013
In recent years, reporting under International Financial Reporting Standards (IFRS) became mandatory in many countries. The capital-market effects around this change have been extensively studied, but their sources are not yet well understood. This study aims to distinguish between several potential explanations for the observed capital-market effects. We find that, across all countries, mandatory IFRS reporting had little impact on liquidity. The liquidity effects around IFRS introduction are c
REVISION: Does Fair Value Accounting for Non-Financial Assets Pass the Market Test?
Date Posted: Feb 27, 2013
The choice between fair value and historical cost accounting is the subject of long-standing controversy among accounting academics and regulators. Nevertheless, the market-based evidence on this subject is very limited. We study the choice of fair value versus historical cost accounting for non-financial assets in a setting where market forces rather than regulators determine the outcome. In general, we find a very limited use of fair value accounting. However, the observed variation is consist
New: Does Fair Value Accounting for Non-Financial Assets Pass the Market Test?
Date Posted: Feb 13, 2013
The choice between fair value and historical cost accounting is the subject of long-standing controversy among accounting academics and regulators. Nevertheless, the market-based evidence on this subject is very limited. We study the choice of fair value versus historical cost accounting for non-financial assets in setting where market forces rather than regulators determine the outcome. In general, we find a very limited use of fair value accounting. However, the observed variation is consist
REVISION: Capital-Market Effects of Securities Regulation: Hysteresis, Implementation, and Enforcement
Date Posted: Sep 05, 2012
This paper examines capital market effects of changes in securities regulation. We analyze two key directives in the European Union (EU) that tightened market abuse and transparency regulation and its enforcement. All EU member states were required to adopt these two directives, but did so at different points in time. Our research design exploits this differential timing of the same regulatory change to identify the capital-market effects. We also use cross-sectional variation in the strictness
REVISION: Why Do Firms Rarely Adopt IFRS Voluntarily? Academics Find Significant Benefits and the Costs Appear
Date Posted: May 28, 2012
Kim and Shi (this issue) document that voluntary IFRS adoption is associated with significant benefits and argue that the effect is causal – a conclusion that is similar to many published papers on IFRS adoption. Yet voluntary IFRS adopters constitute only a small percentage of the global population of firms, which implies that either practitioners behave irrationally or the benefits are incorrectly estimated by academics. In this discussion I argue that the error is on the part of academics, no
REVISION: Capital Versus Performance Covenants in Debt Contracts
Date Posted: Sep 26, 2011
Building on contracting theory, we argue that financial covenants control the conflicts of interest between lenders and borrowers via two different mechanisms. Capital covenants control agency problems by aligning debtholder-shareholder interests. Performance covenants serve as tripwires that limit agency problems via the transfer of control to lenders in states where the value of their claim is at risk. Companies trade off these mechanisms. Capital covenants impose costly restrictions on capit
REVISION: Loan Ownership Dispersion and Control over Mandatory GAAP Changes
Date Posted: Oct 10, 2010
Using a sample of 500 private credit agreements originated over the 1996 to 2004 period, we study firms’ choice of contracting practice with respect to mandatory changes in GAAP – understanding the choice of contracting practice is necessary to understand the economic consequences of GAAP changes. We identify a new contracting practice that differs from the practices documented in prior work in that it gives the contracting parties a valuable option to exclude the effect of accounting changes. B
REVISION: Do IFRS Reconciliations Convey Information? The Effect of Debt Contracting
Date Posted: Oct 18, 2009
We examine whether UK GAAP to IFRS earnings reconciliations convey information. As a result of debt contracting, mandatory accounting changes are expected to affect the likelihood of violating existing covenants based on rolling GAAP, leading to a redistribution of wealth between shareholders and lenders. Consistent with this prediction, we find significant market reactions to IFRS reconciliation announcements. These market reactions are more pronounced among firms that face a greater likelihoo
REVISION: Incentives or Standards: What Determines Accounting Quality Changes Around IFRS Adoption?
Date Posted: Mar 14, 2008
We examine the impact of incentives on accounting quality changes around IFRS adoption. In particular, we examine earnings management and timely loss recognition, constructs often used to assess accounting standards quality. While existing literature documents accounting quality improvements following IFRS adoption, we find that improvements are confined to firms with incentives to adopt. Further, we find that firms that resist IFRS have closer connections with banks and inside shareholders, whi