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An Investigation of the Relationship between Use of International Accounting Standards and Source of Company Finance in Germany


  • The authors express their gratitude to Olaf Reinhardt and Stefan Priemer for translation services. We wish to thank Philip Brown, Lin Cheng, Martin Glaum, Sid Gray, Chris Nobes and seminar participants at the EAA 2005 conference at Göteborg, Sweden, the American Accounting Association annual meeting Denver 2011, the Justus-Liebig-Universität Giessen, the University of Sydney and the University of Western Australia for their helpful comments. We thank the editor and referees for their valuable contributions to improve the paper.


This study examines the relationship between use of international accounting standards and companies’ source of finance. We investigate the proposition contained in Nobes’ (1998) model that postulates outsider companies (those with a higher level of public finance) in weak equity–outsider markets (capital markets where public equity finance is not the dominant source of finance) are more likely to change their type of accounting system from one focused on information for creditors and tax authorities to one that meets the needs of external financiers. We found strong support for Nobes’ model. Using 408 German listed companies at 1999, we observed that companies with more outsider finance (the proportion of shares held by outsiders and the presence of public debt) were more likely to use international standards (U.S. GAAP or IAS). The results indicate the importance of controlling for source of finance at the company rather than country level in cross-country studies investigating the benefits of adoption of international standards.