Open AccessShort-term and long-term effects of IFRS adoption on disclosure quality and earnings management
Author(s) -
Marcus Salewski,
Torben Teuteberg,
Henning Zülch
Publication year - 2016
Publication title -
corporate ownership and control
Language(s) - English
Resource type - Journals
eISSN - 1810-0368
pISSN - 1727-9232
DOI - 10.22495/cocv13i2c3p6
Subject(s) - earnings management , accounting , business , accrual , enforcement , transparency (behavior) , earnings quality , quality (philosophy) , international financial reporting standards , earnings , sample (material) , philosophy , epistemology , political science , law , chemistry , chromatography
This study investigates the effect of IFRS adoption on the transparency of financial reporting in Germany. For a sample period from 1995 to 2012, we analyze the development of the degree of earnings management and of disclosure quality using discretionary accruals and disclosure quality scores from an annual report ‘beauty contest’ published by a German business journal as proxies. We find that IFRS adoption is associated with an increase in disclosure quality and with an initial increase in the extent of earnings management. We argue that the latter is driven by factors such as low compliance, lack of experience and weaker enforcement in the early years of IFRS accounting and show that the degree of earnings management decreases from the ‘early’ to the ‘mature’ phase of IFRS accounting. Finally, we provide evidence for a negative association between disclosure quality and earnings management indicating that disclosures potentially constrain earnings management