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Mandatory IFRS Adoption and Accounting Quality of European Banks

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Mandatory IFRS Adoption and Accounting Quality of European Banks. / Gebhardt, GüNther; Novotny-Farkas, Zoltan.

In: Journal of Business Finance and Accounting, Vol. 38, No. 3-4, 04.2011, p. 289-333.

Research output: Contribution to journalJournal articlepeer-review

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Gebhardt, G & Novotny-Farkas, Z 2011, 'Mandatory IFRS Adoption and Accounting Quality of European Banks', Journal of Business Finance and Accounting, vol. 38, no. 3-4, pp. 289-333. https://doi.org/10.1111/j.1468-5957.2011.02242.x

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Gebhardt, GüNther ; Novotny-Farkas, Zoltan. / Mandatory IFRS Adoption and Accounting Quality of European Banks. In: Journal of Business Finance and Accounting. 2011 ; Vol. 38, No. 3-4. pp. 289-333.

Bibtex

@article{d0d6ddecba5243049ad35dbd35de9127,
title = "Mandatory IFRS Adoption and Accounting Quality of European Banks",
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{\textquoteright} 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.",
keywords = "IFRS, bank accounting, loan loss provisions , income smoothing , timeliness of loss recognition , bank regulation , ownership structure",
author = "G{\"u}Nther Gebhardt and Zoltan Novotny-Farkas",
year = "2011",
month = apr,
doi = "10.1111/j.1468-5957.2011.02242.x",
language = "English",
volume = "38",
pages = "289--333",
journal = "Journal of Business Finance and Accounting",
issn = "0306-686X",
publisher = "Wiley-Blackwell",
number = "3-4",

}

RIS

TY - JOUR

T1 - Mandatory IFRS Adoption and Accounting Quality of European Banks

AU - Gebhardt, GüNther

AU - Novotny-Farkas, Zoltan

PY - 2011/4

Y1 - 2011/4

N2 - 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.

AB - 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.

KW - IFRS

KW - bank accounting

KW - loan loss provisions

KW - income smoothing

KW - timeliness of loss recognition

KW - bank regulation

KW - ownership structure

U2 - 10.1111/j.1468-5957.2011.02242.x

DO - 10.1111/j.1468-5957.2011.02242.x

M3 - Journal article

VL - 38

SP - 289

EP - 333

JO - Journal of Business Finance and Accounting

JF - Journal of Business Finance and Accounting

SN - 0306-686X

IS - 3-4

ER -