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Adopting a Label: Heterogeneity in the Economic Consequences Around IAS/IFRS Adoptions


  • We appreciate the helpful comments of an anonymous referee, Ray Ball, Hans Christensen, Joachim Gassen, Günther Gebhardt, Bob Holthausen, Bjorn Jorgensen, Peter Wysocki, Steve Young, and workshop participants at the 2007 Utah Winter Accounting Conference, 2007 Harvard Business School IMO Conference, 2007 Global Issues in Accounting Conference, 2007 Journal of Accounting, Auditing and Finance Conference, 2008 AAA Annual Meeting, University of Chicago, INSEAD, Lancaster University, University of Lugano, University of Mannheim, Massachusetts Institute of Technology, University of Missouri, and New York University. We thank Eric Blouin, Emily Goergen, Wannia Hu, Yuji Maruyama, Anindya Mishra, Michael Sall, Caleb Smith, Richie Wan, and Kai Wright for their excellent research assistance. The data set of voluntary IAS reporting created for this study is available for download here:


This study examines liquidity and cost of capital effects around voluntary and mandatory IAS/IFRS adoptions. In contrast to prior work, we focus on the firm-level heterogeneity in the economic consequences, recognizing that firms have considerable discretion in how they implement the new standards. Some firms may make very few changes and adopt IAS/IFRS more in name, while for others the change in standards could be part of a strategy to increase their commitment to transparency. To test these predictions, we classify firms into “label” and “serious” adopters using firm-level changes in reporting incentives, actual reporting behavior, and the external reporting environment around the switch to IAS/IFRS. We analyze whether capital-market effects are different across “serious” and “label” firms. While on average liquidity and cost of capital often do not change around voluntary IAS/IFRS adoptions, we find considerable heterogeneity: “Serious” adoptions are associated with an increase in liquidity and a decline in cost of capital, whereas “label” adoptions are not. We obtain similar results when classifying firms around mandatory IFRS adoption. Our findings imply that we have to exercise caution when interpreting capital-market effects around IAS/IFRS adoption as they also reflect changes in reporting incentives or in firms’ broader reporting strategies, and not just the standards.