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IFRS experience and earnings quality in the GCC region

IFRS experience and earnings quality in the GCC region This paper aims to examine the association between the adoption experience of the International Financial Reporting Standards (IFRS) and the quality of reported earnings in the Gulf Cooperation Council (GCC) region – a region that exhibits several features of emerging economies.Design/methodology/approachThe authors analyse a hand-collected dataset of 222 firms across 4 countries in the GCC region over the period 2012–2017 and measure “IFRS experience” as the number of years since a country has mandatorily adopted the IFRS. In measuring earnings quality, the authors focus on two properties of reported earnings: persistence and accruals quality and employ multivariate regression models based on two-way cluster-robust standard errors and fixed-effects.FindingsThis study’s findings suggest that earnings persistence is decreasing, and discretionary accruals are increasing in IFRS experience in the GCC region over the period 2012–2017. The authors conclude that reported earnings quality has declined following IFRS adoption in this sample.Research limitations/implicationsThe authors contribute to the IFRS literature in the GCC region, which is in its infancy.Practical implicationsThis study’s findings have important policy implications for countries that are about to adopt or are in the early implementation stage of IFRS and suggest that strong enforcement of accounting standards along with improvement in the institutional environments might be needed for improving financial reporting quality.Originality/valueThe authors provide the first cross-country evidence on the relation between IFRS adoption in the GCC region and earnings quality. Moreover, unlike most prior studies, the authors employ a continuous measure that is superior to a binary measure in capturing the effect of IFRS adoption. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Managerial Finance Emerald Publishing

IFRS experience and earnings quality in the GCC region

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References (93)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1743-9132
DOI
10.1108/ijmf-09-2021-0410
Publisher site
See Article on Publisher Site

Abstract

This paper aims to examine the association between the adoption experience of the International Financial Reporting Standards (IFRS) and the quality of reported earnings in the Gulf Cooperation Council (GCC) region – a region that exhibits several features of emerging economies.Design/methodology/approachThe authors analyse a hand-collected dataset of 222 firms across 4 countries in the GCC region over the period 2012–2017 and measure “IFRS experience” as the number of years since a country has mandatorily adopted the IFRS. In measuring earnings quality, the authors focus on two properties of reported earnings: persistence and accruals quality and employ multivariate regression models based on two-way cluster-robust standard errors and fixed-effects.FindingsThis study’s findings suggest that earnings persistence is decreasing, and discretionary accruals are increasing in IFRS experience in the GCC region over the period 2012–2017. The authors conclude that reported earnings quality has declined following IFRS adoption in this sample.Research limitations/implicationsThe authors contribute to the IFRS literature in the GCC region, which is in its infancy.Practical implicationsThis study’s findings have important policy implications for countries that are about to adopt or are in the early implementation stage of IFRS and suggest that strong enforcement of accounting standards along with improvement in the institutional environments might be needed for improving financial reporting quality.Originality/valueThe authors provide the first cross-country evidence on the relation between IFRS adoption in the GCC region and earnings quality. Moreover, unlike most prior studies, the authors employ a continuous measure that is superior to a binary measure in capturing the effect of IFRS adoption.

Journal

International Journal of Managerial Finance – Emerald Publishing

Published: May 2, 2023

Keywords: IFRS; GCC region; Earnings persistence; Discretionary accruals; Earnings quality

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