How Has IFRS Impacted Financial Reporting for Unlisted Entities?

This paper addresses the question whether adoption of International Financial Reporting Standards (IFRS) is associated with low earnings management in unlisted companies in three European countries. Therefore, this paper investigates whether companies that have adopted IFRS voluntarily engage significantly less in earnings management compared to companies that have not adopted IFRS. Moreover, this study examines firm-specific incentives and their role in the adoption decision within different institutional settings. The distribution of earnings is analyzed to discover whether companies have managed their earnings. Logistic regression analysis is used to examine the firm-specific incentives. Empirical findings reveal that in sample of unlisted firms using IFRS the distribution of earnings is smoother. Thus, the results provide supporting evidence for the adoption of IFRS. Moreover, results of this study provide relatively good empirical support for statements that large unlisted firms with foreign owners and that are profitable are more likely to adopt IFRS voluntarily. However, the firm-specific incentives play different role in the adoption decision process in weak institutional settings compared to strong institutional settings.