Why Do Japanese Firms Voluntarily Adopt IFRS?

• In Event: IFRS Adoption 1

Abstract

Japanese listed firms have the option of which accounting standards they adopt. Since IFRS was permitted to be adopted in 2010, the number of firms voluntarily adopting IFRS has been rapidly increasing. The purpose of the research is to examine the determinants of firms’ accounting standards choice. Specifically, we use the Japanese setting and empirically examine why Japanese listed firms chose IFRS. Prior studies examine the determinants of firms’ or countries’ IFRS adoption and find various factors. Based on these, we develop three hypotheses regarding network effects, corporate governance, and differences among accounting standards. The most important hypothesis in this study is network effects, which Ramanna and Sletten (2014) have tested in the context of country-level decisions on IFRS adoption. We extend their work to firm-level decisions on voluntary IFRS adoption and measure the size or type of network using four proxies. Also, we form hypotheses regarding corporate governance and differences between accounting standards to retest previous studies using the Japanese setting (Inoue and Ishikawa 2014; Sato and Takeda 2017).
The evidence in this study supports the existence of network effects, as well as the effects of corporate governance and differences between accounting standards. In addition, by using advisory data, we get new insight into firms’ incentives to adopt IFRS, which differs between earlier adopters and potential adopters. While corporate governance becomes a weak factor for potential adopters, network effects remain a significant factor for both earlier and potential adopters. This suggests that network effects give firms stronger incentive to adopt IFRS.

Authors

• Eriko Kameoka, Bunkyo University

• Masashi Okumura, Waseda University

• Su Yan, Waseda University