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Are international accounting standards more credit relevant than domestic standards?

Florou, Annita, Kosi, Urska and Pope, Peter F. (2017) Are international accounting standards more credit relevant than domestic standards? Accounting and Business Research, 47 (1). pp. 1-29. ISSN 0001-4788

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Identification Number: 10.1080/00014788.2016.1224968

Abstract

We examine whether the credit relevance of financial statements, defined as the ability of accounting numbers to explain credit ratings, is higher after firms are required to report under International Financial Reporting Standards (IFRS). We find an improvement in credit relevance for firms in 17 countries after mandatory IFRS reporting is introduced in 2005; this increase is higher than that reported for a matched sample of US firms. The increase in credit relevance is particularly pronounced for higher risk speculative-grade issuers, where accounting information is predicted to be more important; and for IFRS adopters with large first-time reconciliations, where the impact of IFRS is expected to be greater. These tests provide reassurance that the overall enhancement in estimated credit relevance is driven by accounting changes related to IFRS adoption. Our results suggest that credit rating analysts’ views of economic fundamentals are more closely aligned with IFRS numbers, and that analysts anticipate at least some of the effects of the IFRS transition.

Item Type: Article
Official URL: http://www.tandfonline.com/toc/rabr20/current
Additional Information: © 2016 Informa UK Limited
Divisions: Accounting
Subjects: H Social Sciences > HF Commerce > HF5601 Accounting
JEL classification: G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets
G - Financial Economics > G3 - Corporate Finance and Governance > G33 - Bankruptcy; Liquidation
K - Law and Economics > K2 - Regulation and Business Law > K20 - General
M - Business Administration and Business Economics; Marketing; Accounting > M4 - Accounting and Auditing > M41 - Accounting
Sets: Departments > Accounting
Date Deposited: 01 Nov 2016 11:50
Last Modified: 20 Oct 2019 02:40
Projects: MRTN-CT-2006-035850
Funders: European Commission
URI: http://eprints.lse.ac.uk/id/eprint/68202

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