First-Time Adoption of IFRS, Managerial Incentives and Value- Relevance: Some French Evidence

This paper investigates whether and how managerial incentives influence the decision to elect optional exemptions when first adopting International Financial Reporting Standards (IFRS). It also examines the value-relevance of the mandatory and optional equity adjustments that must be recognized as a result of the first-time adoption of IFRS. Both questions are addressed in the context of the mandatory adoption of IFRS by French firms in 2005. Three major findings emerge from our analyses. First, managerial incentives influence the decision to strategically elect one or more optional exemptions at the transition date. Second, mandatory equity adjustments are more valued than French GAAP equity, suggesting that the first-time adoption of IFRS by French firms is perceived as a signal of an increase in the quality of their financial statements. Third, the value-relevance of optional IFRS equity adjustments depends on whether they result in the disclosure of new information.