Summary and Concluding Remarks

6. Summary and Concluding Remarks

Our results indicate that the accounting amounts of firms that apply IAS are of higher quality than those of non-U.S. firms that do not. The accounting amounts we compare result from the interaction of features of the financial reporting system, which include accounting standards, their interpretation, enforcement, and litigation. Generally, we find that firms applying IAS exhibit less earnings smoothing, less managing of earnings towards a target, more timely recognition of losses, and a higher association of accounting amounts with share prices and returns. Although we include research design features to mitigate the effects of incentives and the eco- nomic environment, we cannot be sure that our findings are attributable

INTERNATIONAL ACCOUNTING STANDARDS 497 to the change in the financial reporting system rather than to changes in

firms’ incentives and the economic environment. Our inferences are based on comparisons of accounting quality metrics for a broad sample of firms in 21 countries that adopted IAS between 1994 and 2003. In particular, we compare accounting quality metrics for firms that apply IAS to those for a matched sample of non-U.S. firms that do not in the period after the IAS firms adopt IAS. We generally find that IAS firms have higher accounting quality than firms that do not apply IAS. Differences in accounting quality between the two groups of firms in the period before the IAS firms adopt IAS do not account for the postadoption differences. We also compare accounting quality metrics for IAS firms in the periods before and after they adopt IAS. We generally find that IAS firms evidence an improvement in accounting quality between the pre- and postadoption periods.

REFERENCES

A SHBAUGH , H. “Non-U.S. Firms’ Accounting Standard Choices.” Journal of Accounting and Public Policy 20 (2001): 129–53. A SHBAUGH , H., AND M. P INCUS . “Domestic Accounting Standards, International Accounting Standards, and the Predictability of Earnings.” Journal of Accounting Research 39 (2001): 417– 34.

B ALL , R.; S. P. K OTHARI ; AND OBIN A. R . “The Effect of International Institutional Factors on

Properties of Accounting Earnings.” Journal of Accounting & Economics 29 (2000): 1–51. B ALL , R.; A. R OBIN ; AND J. S. W U . “Incentives versus Standards: Properties of Accounting Income in Four East Asian Countries.” Journal of Accounting & Economics 36 (2003): 235–70. B ALL , R., AND L. S HIVAKUMAR . “Earnings Quality in UK Private Firms: Comparative Loss Recog- nition Timeliness.” Journal of Accounting & Economics 39 (2005): 83–128. B ALL , R., AND L. S HIVAKUMAR . “The Role of Accruals in Asymmetrically Timely Gain and Loss Recognition.” Journal of Accounting Research 44 (2006): 207–42. B ARTH , M. E.; W. H. B EAVER ; AND W. R. L ANDSMAN . “The Relevance of the Value Relevance Literature for Accounting Standard Setting: Another View.” Journal of Accounting & Economics 31 (2001): 77–104. B ARTH , M. E.; Y. K ONCHITCHKI ; AND W. R. L ANDSMAN . “Cost of Capital and Financial State- ment Transparency.” Working paper, Stanford University and University of North Carolina, 2007.

B ARTOV , E.; S. G OLDBERG ; AND M. K IM . “Comparative Value Relevance among German, U.S. and International Accounting Standards: A German Stock Market Perspective.” Journal of Accounting, Auditing and Finance 20 (2005): 95–119.

B RADSHAW , M. T., AND G. S. M ILLER . “Will Harmonizing Accounting Standards Really Har- monize Accounting? Evidence from Non-U.S. Firms Adopting US GAAP.” Working paper, Harvard Business School, 2007.

B REEDEN , R. “Foreign Companies and U.S. Markets in a Time of Economic Transformation.” Fordham International Law Journal 17 (1994): S77–96. B URGSTAHLER , D., AND

ICHEV I. D . “Earnings Management to Avoid Earnings Decreases and Losses.” Journal of Accounting & Economics 24 (1997): 99–126.

B URGSTAHLER , D.; L. H AIL ; AND EUZ C. L . “The Importance of Reporting Incentives: Earnings Management in European Private and Public Firms.” The Accounting Review 81 (2006): 983– 1016.

C AIRNS , D. “Degrees of Compliance.” Accountancy International (1999): 68–69. C RAMER , J. S. “Mean and Variance of R 2 in Small and Moderate Samples.” Journal of Econometrics 35 (1987): 253–66.

498 M . E . BARTH , W . R . LANDSMAN , AND M . H . LANG

D ASKE , H. “Economic Benefits of Adopting IFRS or US-GAAP—Have the Expected Costs of Equity Capital Really Decreased?” Journal of Business Finance and Accounting 33 (2006): 329– 73.

D ASKE , H.; L. H AIL ; C. L EUZ ; AND R. V ERDI . “Adopting a Label: Heterogeneity in the Economic Consequences of IFRS Adoptions.” Working paper, Wharton School, 2007. D ECHOW , P. M. “Accounting Earnings and Cash Flows as Measures of Firm Performance: The Role of Accounting Accruals.” Journal of Accounting & Economics 18 (1994): 3–42. E CCHER , E., AND P. H EALY . “The Role of International Accounting Standards in Transitional Economies: A Study of the People’s Republic of China.” Working paper, Massachusetts In- stitute of Technology, 2003.

E WERT , R., AND AGENHOFER A. W . “Economic Effects of Tightening Accounting Standards to Restrict Earnings Management.” The Accounting Review 43 (2005): 1101–24. G REENE , W. Econometric Analysis. New York: MacMillan, 1993. H EALY , P. M. “The Effect of Bonus Schemes on Accounting Decisions.” Journal of Accounting &

Economics 7 (1985): 85–107. H UNG , M., AND K. R. S UBRAMANYAM . “Financial Statement Effects of Adopting International

Accounting Standards: The Case of Germany.” Review of Accounting Studies 12 (2007): 623–57. I NTERNATIONAL A CCOUNTING S TANDARDS C OMMITTEE (IASC). Framework for the Preparation and Presentation of Financial Statements. London, UK: IASC, 1989. I NTERNATIONAL O RGANIZATION OF S ECURITIES C OMMISSIONS (IOSCO). A Resolution on IASC Standards. Presidents’ Committee of IOSCO. Madrid, Spain: IOSCO, 2000. L AND , J., AND M. L ANG . “Empirical Evidence on the Evolution of International Earnings.” The Accounting Review 77 (2002): 115–34. L ANDSMAN , W., AND J. M AGLIOLO . “Cross-Sectional Capital Market Research and Model Speci- fication.” The Accounting Review 63 (1988): 586–604. L ANG , M.; J. R AEDY ; AND W. W ILSON . “Earnings Management and Cross Listing: Are Reconciled Earnings Comparable to US Earnings?” Journal of Accounting and Economics 42 (2006): 255–83. L ANG , M.; J. R AEDY ; AND M. Y ETMAN . “How Representative Are Firms That Are Cross Listed in the United States? An Analysis of Accounting Quality.” Journal of Accounting Research 41 (2003): 363–86.

L EUZ , C. “IAS versus U.S. GAAP: Information Asymmetry-Based Evidence from Germany’s New Market.” Journal of Accounting Research 41 (2003): 445–27. L EUZ , C.; D. N ANDA ; AND P. W YSOCKI . “Earnings Management and Investor Protection: An International Comparison.” Journal of Financial Economics 69 (2003): 505–27. M YERS , J. N.; M YERS , L. A.; AND

KINNER D. J. S . “Earnings Momentum and Earnings Manage- ment.” Journal of Accounting, Auditing, and Finance 22 (2007): 249–84. P AGANO , M.; A. R ¨ OELL ; AND J. Z ECHNER . “The Geography of Equity Listings: Why Do Companies List Abroad?” Journal of Finance 57 (2002): 2651–94. S TREET , D., AND S. G RAY . Observance of International Accounting Standards: Factors Explaining Non- Compliance. ACCA Research Report No. 74. London, UK: Association of Chartered Certified Accountants, 2001.

T ARCA , A. “International Convergence of Accounting Practices: Choosing Between IAS and US GAAP.” Journal of International Financial Management and Accounting 15 (2004): 60–91. V AN T ENDELOO , B., AND

ANSTRAELEN A. V . “Earnings Management under German GAAP versus IFRS.” European Accounting Review 14 (2005): 155–80. W ATTS , R. L., AND Z IMMERMAN , J. L. Positive Accounting Theory. New York: Prentice Hall, 1986. W YSOCKI , P. “Assessing Earnings and Accruals Quality: US and International Evidence.” Working

Paper, Massachusetts Institute of Technology, 2005.