Examining the Long-term performance effects of early IFRS adoption Essay

For old ages get downing on or after January 1, 2005, all publically listed European houses were required to fix IFRS compliant consolidated fiscal statements ( Regulation ( EC ) 1606/2002 ) . About 7,000 listed European Union ( EU ) houses were affected by this regulative enforcement.

In Turkey, as portion of the harmonisation procedure with the EU, wholly listed houses were besides obliged to fix IFRS compliant consolidated financials from 01.01.2005 onwards. During the passage period, houses were given the option of staying by this ordinance from 31.12.2003 onwards, therefore following it ‘early ‘ .

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However, we do non cognize how such a bold move affected the Turkish houses ‘ public presentation. This provides the chief motive for the paper. The survey explicitly investigates the long-run public presentation effects of such early IFRS acceptance and looks into the factors that could be driving the consequences.

The balance of the paper is organized as follows. Section 2 outlines the theoretical background, Section 3 describes the information and methodological analysis and Section 4 presents the findings and eventually Section 5 concludes.


This subdivision explains the theoretical background the paper is based on. It looks at the issue from the Positive Accounting Theory ( PAT ) and from the Agency Theory positions and points out some common anticipations of both theories. Additionally, it provides a brief reappraisal of the surveies in the country.

Harmonizing to Positive Accounting Theory ( PAT ) “ there is a relation between houses ‘ accounting pick and other house variables ” ( Watts and Zimmerman, 1990, p.132 ) . The foundations of this theory goes back to the open uping plants of Watts and Zimmerman ( 1978, 1979 ) researching the links between accounting pick and catching costs. Subsequently on, Fama and Jensen ( 1983a, 1983b ) suggested that minimising undertaking costs was important in house endurance. Additionally, the term ‘contracting costs ‘ was used by Klein ( 1983 ) to specifically mention to those bureau costs that are relevant in explicating the contract which shape organisational pick.

In the empirical trial of this theory, the political cost hypothesis has received considerable attending. This hypothesis predicts that big houses are more likely to utilize profit-reducing accounting methods. The size consequence and other anticipations of this theory received terrible unfavorable judgments and led to a battalion of research documents[ 1 ].

This argument still remains popular. Basu ( 2001 ) studies that little houses in the US are more conservative and are more loath to follow new accounting methods. More late, Missonier-Piera ( 2004 ) supply empirical grounds demoing that accounting picks can be explained by a positive attack, in the Swiss context.

Empirical plants based in the Agency Theory, find lessenings in the cost of capital ( Francis et al. , 2004 ) and positive economic effects ( Bartov et al. , 2005 ) associated with International Accounting Standards ( IAS ) acceptance. Daske and Gebhart ( 2006 ) and Barth et Al. ( 2008 ) besides find that acceptance of IFRS improves the accounting quality of publically listed houses in Europe.

Widening this line of research, one would anticipate a major alteration in accounting method, such as voluntary IFRS acceptance, to impact steadfast public presentation. This is explicitly tested in the undermentioned subdivisions.


The sample is constructed from the Istanbul Chamber of Industry 500 ( ICI 500 ) list which sporadically ranks the top 500 industrial houses in Turkey. There are 48 houses which have opted to fix IFRS compliant consolidated financials ( early-adopters ) , consisting the ‘test group ‘ of houses. Besides, from the ICI500, a size, sector and public presentation matched sample is constructed as the ‘control group ‘ of houses.

In order to prove whether voluntary ( in other words ‘early ‘ ) acceptance of IFRS affected long-run public presentation of houses, variables used in anterior surveies to proxy for house size, short-run public presentation and ownership were employed as control variables. A figure of dummy variables were besides used to command for citation position, runing sector and metropolis of incorporation.

Initially, differences in medians between the trial and control group are investigated through a Mann-Whitney U trial and the statistically important public presentation variables are farther explored through a multivariate additive arrested development. A sensitiveness analysis affecting the usage of alternate variables to mensurate long-run public presentation are considered, followed by a elaborate scrutiny of high performing artists through a univariate and multivariate logistic arrested development model.


Table 1 presents the size, short-run public presentation, long-run public presentation, ownership and categorical variables used in the survey. Sample houses had mean entire assets of 436 million TL for 2003, which was the twelvemonth houses had the option of voluntarily following IFRS. For the same twelvemonth, sample houses had mean gross revenues of 645 million TL, mean net income before involvement and revenue enhancements of 45 million TL, and mean stockholders ‘ equity of 213 million TL. While, in footings of short-run public presentation, sample houses had sector-adjusted mean return on equity ( ROE ) , return on assets ( ROA ) and return on gross revenues ( ROS ) of 7.3 % , 0.6 % and 1 % , severally, in 2003.

The average value of the mean ROS ( ROA ) over the following 3-yr period following voluntary acceptance was 6.5 % ( 6.8 % ) . Majority of the houses in the sample were in private owned. The mean degree of private ownership was 77 % , while the mean degree of foreign ownership was 19 % . The mean province ownership of 6 % , was due to houses which have been antecedently privatized or on the denationalization docket for the current twelvemonth[ 2 ].

In the sample there were 48 IFRS early-adopters, which comprised the ‘test houses ‘ . Out of these 48 trial houses, 41 were quoted at the ISE, therefore ensuing in a sum of 82 quoted houses in the overall sample. Looking at the distribution of the sample houses ‘ primary sectors, it is just to state that they are reasonably representative of the houses on the ICI500 list. The lone exclusion is the public-service corporations sector, with a really high degree of province ownership and specific concern environment. In footings of the metropolis of incorporation, Istanbul is over-represented, non merely in our sample but besides in the population ( ICI500 ) that the sample was drawn from. Overall, the distribution of the metropolis of incorporation resembles that of the ICI500.

Table 2 nowadayss the consequences of the Mann-Whitney U trial for the difference in medians of the short-run and long-run public presentation variables for the trial versus the control group of houses. There is no important difference between the short-run public presentation of the trial and the control group.

However, the long-run public presentation of the trial group is statistically significantly higher, for both ROA and ROS. The mean 3-yr ROS is 6.5 % for the trial group and 2.7 % for the control group ( p:0.048 ) . Similarly, the mean 3-yr ROA is 7.6 % for the trial group and 4 % for the control group of houses.

In order to happen out which factors could be driving these findings, multivariate arrested development theoretical accounts are constructed, utilizing alternate specifications of long-run public presentation. In Table 3, for each dependant variable, AvgROS-3yr and AvgROA-3yr, there are 2 different multivariate arrested development theoretical accounts utilizing the enter method and the backward stepwise method.

Using the Enter method, the independent, control and silent person variables together explain 2.5 % of the fluctuation in AvgROS-3yr ( p-value of F: 0.316 ) and 18.8 % of the fluctuation in AvgROA-3yr ( p-value of F: 0.012 ) . The lone important relationship is between the short-run public presentation variable and AvgROA-3yr.

Using the backward method, there is a important and positive relationship between the size variable and AvgROS-3yr, every bit good as the short-run public presentation variable and AvgROA-3yr. There is besides a positive relationship between the foreign ownership variable and AvgROA-3yr, which is marginally undistinguished ( p:0.055 ) .

The IFRS-EarlyAdopt silent person is non important in any of the arrested development theoretical accounts. Overall, the findings are qualitatively similar utilizing alternate specifications for the size and short-run public presentation variables.

Table 4 presents the findings of the sensitiveness analysis, utilizing growing variables to mensurate long-run public presentation. The trial houses outperform the control houses in all three steps of long-run public presentation utilizing growing variables. The 3-yr norm for gross revenues growing is 21.5 % for trial houses, compared to 20.4 % for control houses. However, the difference is marginally undistinguished. Using 3-yr mean income growing and plus growing, there is a statistically important difference between trial and control houses.

Table 5 nowadayss the consequences of the logistic arrested development utilizing HIGH-AvgAssetGrwth-3yr as the dependant variable, which takes on a value of 1 if the 3-yr mean plus growing of the house is higher than the average ( 0.229 ) and zero otherwise. The independent, control and silent person variables are the same as the multivariate additive arrested development analysis in Table 3.

In the univariate analysis each variable is regressed on the dependent variable one-by-one and merely the statistically important variables are presented in the first 2 columns of Table 5 for infinite grounds. There is a negative relationship between the size variable and the growing variable ( 0.024 ) . In other words, houses that are already big are less likely to hold mean plus growing higher than the median in the long tally. This determination makes sense intuitively.

There is a positive relationship between the IFRS-EarlyAdopt variable and the growing variable ( p:0.000 ) . This relationship holds in both the univariate and the multivariate logistic arrested development theoretical account. In fact, the IFRS-EarlyAdopt variable entirely explains 18.4 % of the variableness in the growing variable ( P of theoretical account F value:0.000 ) . The multivariate enter theoretical account, including all the independent, control and silent person variables, explains 52.4 % of the variableness in the growing variable. However, the lone important variable in both the enter and backward stepwise theoretical account is the IFRS-EarlyAdopt variable.


Overall, comparing IFRS early-adopters with a sector, size and public presentation matched control sample of houses, there is a statistically important difference ( at the 5 % degree ) between the two groups. In look intoing the drivers behind the early-adopters better public presentation we find grounds in support of the size consequence and the short-run public presentation consequence. In other words, big houses and houses presently executing better than their equals are more likely to surpass the others in the long-term. At this point it looks as if being an early-adopter has no consequence on house public presentation when all the other independent, control and silent person variables are taken into history.

However, when long-run growing variables are used to proxy for house public presentation, the early adoptive parents clearly outperform their equals. Furthermore, early-adopters are more likely to be in the high public presentation group even when all the other factors that could potentially hold an impact on public presentation are taken into history. Therefore, the variables used to mensurate public presentation are important in measuring the impact of early IFRS acceptance. Overall, the findings support the positive accounting theory.

A major restriction of this work is that it focuses on accounting steps of public presentation. It would be really interesting to see the stock market public presentation of these early-adopters. Unfortunately, it was impossible to carry on such analysis since the sample included houses that are non publically traded. Future work mensurating public presentation for longer clip periods and utilizing alternate variables would lend to our apprehension of the ‘early acceptance ‘ issue.


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