تغییرات مقطعی در تبعات اقتصادی هماهنگ سازی حسابداری بین المللی:تصویب اجباری IFRS در انگلستان

This study examines the economic consequences for UK firms of the European Union's decision to impose mandatory IFRS. We hypothesize that the impact varies across firms and is conditional on the perceived benefit. We estimate a counter-factual proxy for a UK firm's willingness to adopt IFRS from the prior GAAP choices of German firms. We show that this proxy predicts cross-sectional variations in both the short-run market reactions and the long-run changes in cost of equity that are associated with the decision. This implies that mandatory IFRS adoption does not benefit all firms in a uniform way but results in relative winners and losers.

The mandatory adoption of IFRS1 in the European Union (EU) is one of the largest regulatory experiments in financial reporting ever undertaken, and may eventually prove to be a vital step towards global GAAP harmonization.2 The EU and European Economic Area (EEA) include 30 countries with integrated financial markets and more than 7000 listed firms. Almost all EU/EEA listed firms are legally required to adopt IFRS in their consolidated statements no later than 2005.3 In this paper, we examine the economic consequences of mandatory IFRS adoption for United Kingdom (UK) listed firms. We study both the short-term price response to news about IFRS adoption, and the changes in the implied cost of equity for a large sample of firms between a date before the mandatory adoption was expected and a date by which mandatory adoption was effectively certain. The short-run share-price response and long-run implied cost of equity methods complement each other when testing the effect of mandatory IFRS adoption. The potential advantage of focusing on short-run abnormal returns is that we are able to isolate specific days when news affects all firms in the sample. The disadvantage is that it is reliant on precise identification of the event days. In particular it assumes that there has been no leakage of the policy deliberations to the market. Unfortunately the dates on which the probability of mandatory adoption of IFRS changed are debatable. In contrast, an advantage of using the implied cost of equity method is that it is not sensitive to the identification of specific dates — we simply exclude the period of uncertainty and test the difference between the implied cost of equity before and after the announcement period. However, the estimation of the implied cost of equity is also potentially problematic, because it is often difficult to control for all factors affecting the implied cost of equity over a long period of time. Thus we view the two methodologies as being complementary and we believe that their joint use should increase the robustness of our conclusions. We hypothesize that UK firms vary in their willingness to adopt IFRS, because the costs and benefits of IFRS adoption are likely to vary across firms. In terms of the literature on accounting choice, the decision to mandate IFRS for UK quoted firms was unusual in the sense that it cannot be simply portrayed as the imposition of a restriction on the accounting choices of UK firms. Prior to 2005 UK firms were not permitted to adopt IFRS for UK financial-reporting purposes. After 2005, UK firms are not allowed to use pre-2005 UK GAAP in their consolidated statements for financial reporting purposes. Thus the EU decision changed the choice set for UK firms by mandating a new set of rules for financial reporting that some UK firms might have adopted voluntarily, if they had been given the choice. If UK firms had been given a choice between UK GAAP and IFRS it is logically possible that some would have chosen not to adopt IFRS, and some would have chosen to abandon UK GAAP in favor of IFRS. Thus it is possible that some UK firms would have been constrained by the EU's decision, while others would have been liberated. For the purposes of this paper we need a counter-factual proxy for what choices UK firms would have made, if they had been given an option to choose between UK GAAP and IFRS. One possibility, which we explore in this paper, is to exploit the information in the choices made by firms in an economy similar to the UK, but where firms had the choice to adopt IFRS before 2005. In particular Germany is a major EU economy that allowed early adoption of IFRS and that also experienced extensive early adoption. This combination of Germany and the UK as two major EU economies, but with very different IFRS adoption processes, produces a unique setting for testing the factors affecting the economic consequences of mandatory IFRS adoption. We hypothesize that the characteristics of voluntary/early adopters of IFRS or US-GAAP4 in an EU jurisdiction that allowed voluntary adoption of international accounting standards (IFRS or US-GAAP) might serve as a viable proxy for how UK firms might have behaved given the same choice. In particular we focus on the choices made by German firms.5 In Germany, listed firms have had the option to choose between an international accounting regime (IFRS or US-GAAP) and domestic standards for their consolidated statements since 1998.6 Economic theory predicts that firms committing to an international accounting regime are those that perceive the greatest net-benefit. We measure the degree of similarity to German voluntary adopters by estimating a logistic choice-model using German data and calculating the probability of voluntary adoption in the UK based on this model. We use the estimated probability of voluntary adoption from our model based on German firms as a counter-factual proxy for the probability of voluntary adoption by UK firms. The advantage of this approach is that it focuses on actual observed choices, there is no potential for response bias, and it is based on a large population of firms. The disadvantage of this approach is that the German GAAP and financial disclosure regime is not the same as UK GAAP. The choice between UK GAAP and IFRS for UK firms is not the same as the choice between German GAAP and IFRS for German firms. For example, German IFRS adopters will typically experience a greater leap in disclosure quality. Due to these differences one might expect two sets of determinants for firms' willingness to switch to IFRS, i.e., one set that is common across both countries and another set that is country-specific. For instance, factors that correlate with corporate governance may be less transferable from Germany to the UK. Convincing outside investors that the firm is committed to improved corporate governance may be an underlying motive that is more important to firms in Germany due to the ownership and legal system they operate in. The implications of this fact for our research design is that we run the risk of identifying some determinants from the German adopters that are not necessarily relevant to the UK firms, which would add noise and reduce the power of the tests based on the UK sample. Thus our analysis reports two sets of results for the UK. One set assumes that the choice model for the UK is the same as for Germany. The other set attempts to isolate the Germany-specific choice drivers from the common drivers. We find that the common-driver set produces consistent results both for implied cost of capital changes and for the short-run market responses. In both cases we find a significant positive cross-sectional association between the economic response to mandatory IFRS adoption and our counter-factual proxy for the probability of voluntary adoption by UK firms. The study makes two main contributions. First, understanding that the costs and benefits of IFRS adoption varies systematically across firms is important not only to countries that have already decided to make IFRS mandatory, but also to countries that are currently considering taking this step.7 Second, the study also makes a novel methodological contribution, by showing that under certain circumstances the information contained in voluntary GAAP choices in one economy can predict the economic responses to a mandatory GAAP change in a similar economy. The remainder of the paper is organized as follows. Section 2 reviews the literature in the area and Section 3 develops the testable hypotheses of the paper. Section 4 describes the methodology and sample including the key dates that changed the likelihood of mandatory IFRS in the EU and the calculation of the counter-factual proxy for voluntary adoption in the UK. Section 5 presents the results and discusses the implications. Section 6 summarizes the paper.

In Germany, firms have had the option to comply with an international accounting regime (IFRS or US-GAAP) instead of domestic standards since 1998 and voluntary adoption is widespread. In the UK firms have not had this option and compliance with an international accounting regime is, therefore, very limited and only as a supplement to UK-GAAP. From 2005, IFRS is mandatory in both Germany and the UK as a consequence of EU regulation. We use this unique setting to create a counter-factual proxy for UK firms' willingness to adopt IFRS based on German firms' actual accounting-standard choices, and show that this proxy can predict cross-sectional variations in the economic consequences of mandatory IFRS adoption in the UK. Using an event-study methodology, we find evidence that the stock-price reaction of UK firms to announcements favorable (unfavorable) to mandatory IFRS adoption is positively (negatively) related to our proxy for UK firms' willingness to adopt IFRS. To increase robustness we also study the long-run changes to the implied cost of equity of UK firms after the decision to mandate IFRS. We find that the change to the implied cost of equity is negatively related to our proxy for UK firms' willingness to adopt IFRS. Based on these two methodologies, we infer that cross-sectional variations in the economic consequences of mandatory IFRS adoption by UK firms can be predicted by their willingness to adopt IFRS proxied by the degree of similarity in characteristics with German voluntary IFRS and US-GAAP adopters. Thus, mandatory IFRS has a different effect on the cost of capital depending on firm characteristics. Firms with similar characteristics to German voluntary adopters have greater benefits from international accounting harmonization and in particular from mandatory IFRS adoption. This study also provides evidence on the information contained in firms' accounting policy commitments. We show that commitments made in one country can be used to predict the economic consequences of mandatory regulation in another country. Of course, some determinants may be less transferable from Germany to the UK, given the fact that the two countries investigated differ in their approach to accounting regulation, with the UK's common-law regulation being more similar to IFRS than Germany's code-law regulation. Thus, whereas the prior literature generally argues that relative reductions in cost of capital is related to the quality improvements in the legal framework, this study suggests that relative benefits are at least partly explained by firm-specific factors.