Mandatory IFRS Adoption: Database Coverage and Potential Selection Effects

• In Event: Adoption of IFRS

Abstract

This paper draws its motivation from an empirical observation: the steady decline in the number of listed firms that adopt IFRS, as reported by a major professional financial database, Thomson Reuters' Worldscope. A close look at the coverage of listed firms by Worldscope for the period between 1995 and 2014 reveals this reduction in the number of listed firms that adopt IFRS in 2005, which turns out particularly strong for European countries which concurrent with IFRS adoption introduced enforcement mechanisms. These findings may owe to coverage effects on behalf of the database provider, macroeconomic developments (e.g. the emergence of private equity markets), but, more importantly, also to regulation related real effects, e.g., an effective drain in particular of IFRS and enforcement regulated firms from listed markets. This paper discerns explanations for this empirical phenomenon and discusses research design implications for literature on mandatory IFRS adoption. Overall our findings suggest that the database provider's coverage behavior as well as real effects (e.g., driven by firms' delisting and downlisting behaviour) induce a correlate omitted variable bias in research on mandatory IFRS adoption.

Authors

• Nico Lehmann, Georg-August University at Goettingen

• Joerg-Markus Hitz, Universität Göttingen

• Sebastian Kaumanns, University of Goettingen, Chair of Accounting and Auditing