Mandatory IFRS Adoption and Accounting Quality of European Banks

Journal of Business Finance and Accounting - Tập 38 Số 3-4 - Trang 289-333 - 2011
Günther Gebhardt1, Zoltán Novotny‐Farkas1
1The authors are from Goethe University Frankfurt. They thank participants at the 2008 joint Doctoral Seminar of Goethe University of Frankfurt and University of Mannheim, the 2008 University of Cyprus INTACCT Workshop, the 2009 University of Valencia INTACCT Colloquium, the 2010 JBFA Capital Markets Conference at the University of North Carolina, the 2010 AAA Annual Meeting in San Francisco, an anonymous referee and Andrew Stark (editor) for their valuable comments. They appreciate the comments by Jannis Bischof, Felix Fischer, Urska Kosi, Michael Scholz and Joao Toniato. A part of the data was collected during a research visit to the INTACCT partner institution HEC, Paris (France). This research is part of the INTACCT Research Training Network 'The European IFRS Revolution: Compliance, Consequences and Policy Lessons (Contract No. MRTN-CT-2006-035850)'. The authors gratefully acknowledge the financial contribution of the European Commission.

Tóm tắt

Abstract:  This paper examines the implications of mandatory IFRS adoption on the accounting quality of banks in twelve EU countries. Specifically, we analyse how the change in the recognition and measurement of banks’ main operating accrual item, the loan loss provision, affects income smoothing behaviour and timely loss recognition. We find that the restriction to recognise only incurred losses under IAS 39 significantly reduces income smoothing. This effect is less pronounced in countries with stricter bank supervision, widely dispersed bank ownership and for EU banks cross‐listed in the US. This provides additional evidence that institutions matter in shaping financial reporting outcomes. Further, the application of the incurred loss approach results in less timely loan loss recognition implying delayed recognition of future expected losses. In the light of the ongoing financial crisis it is questionable whether this is a desirable financial reporting outcome of mandatory IFRS adoption.

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Journal of Business Finance and Accounting

Tập 38 Số 3-4

289-333

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