Who Benefits from the Adoption of IFRS?

Abstract

The research objective of this paper is to investigate when the adoption of International Financial Reporting Standards (IFRS) is beneficial to capital market participants. In particular, I specify the conditions in which IFRS is superior to domestic accounting standards from cost of capital and disclosure viewpoint. This paper presents a competitive equilibrium model to demonstrate who would prefer IFRS to domestic accounting standards, and when. It shows that in certain conditions, there is a conflict between firms' managers and investors, with regard to the adoption of IFRS. It also demonstrates that although the quality of accounting standards is an important condition, it does not necessitate IFRS preference by managers and investors. This sheds light on the fact that the ratio of foreign investors affects the decision.