Mandatory Financial Reporting and Voluntary Disclosure: Evidence from Mandatory IFRS Adoption

• In Event: IFRS Adoption

Abstract

This study examines the relation between mandatory reporting and voluntary disclosure and provides evidence on the underlying mechanisms by which these two constructs are related and the role of political institutions in shaping this relation. Using mandatory adoption of International Financial Reporting Standards (IFRS) as the setting, we document a net increase in the likelihood and frequency of management earnings forecasts around IFRS adoption for both common-law and code-law countries. Consistent with existing theory that an increase in ex-post verification of disclosure through mandatory reports results in an increase in voluntary disclosure following IFRS adoption (Confirmatory Channel), we document an increase in overall disclosure level for firms in both common-law and code-law countries. However, firms in code-law countries also experience an asymmetric increase in good- relative to bad-news disclosures, suggesting the presence of Strategic Influence in code-law countries wherein various stakeholders’ interests influence managers’ disclosure behavior.

Authors

• Karthik Balakrishnan, University of Pennsylvania

• Xi Li, Temple University

• Holly Yang, University of Pennsylvania