Does IFRS convergence improve earnings informativeness? An analysis from the book-tax tradeoff perspective

K. Hung CHAN; Kenny Z. LIN; Phyllis L. L. MO; Pauline W. WONG

doi:10.1080/00014788.2021.1946764

Does IFRS convergence improve earnings informativeness? An analysis from the book-tax tradeoff perspective

K. Hung CHAN, Kenny Z. LIN, Phyllis L. L. MO, Pauline W. WONG^*

^*Corresponding author for this work

Department of Accountancy

Research output: Journal Publications › Journal Article (refereed) › peer-review

2 Citations (Scopus)

Abstract

Exploiting the convergence of tax-based accounting standards to the judgement-based International Financial Reporting Standards (IFRS) as an information shock, this study examines whether the decrease in book-tax conformity improves earnings informativeness in China from the book-tax tradeoff perspective. Using A-share firms which experience this drastic regulatory change as the treatment firms and B-share firms which are not subject to such change as the benchmark firms, we find a significant decrease in the earnings informativeness for A-share firms but not B-share firms, and that the decrease is most pronounced for firms with strong financial reporting incentives. Additional analyses reveal that the decreases in earnings informativeness are due to financial reporting changes rather than changes in economic conditions. Our results shed light on the importance of considering underlying institutional factors in assessing the impact of changes in financial reporting on earnings quality.

Original language	English
Pages (from-to)	158-184
Number of pages	27
Journal	Accounting and Business Research
Volume	53
Issue number	2
Early online date	27 Aug 2021
DOIs	https://doi.org/10.1080/00014788.2021.1946764
Publication status	Published - 2023

Bibliographical note

Publisher Copyright:
© 2021 Informa UK Limited, trading as Taylor & Francis Group.

Funding

This work was supported by Lingnan University: [grant number DR15A2]; Hang Seng University of Hong Kong: [grant number URC-CRF-1516-06]; Research Grant Council of Hong Kong: [project number UGC/FDS11/B03/18]. We are grateful to the editors, associate editor (Martin Jacob), and two anonymous referees for their very constructive comments and suggestions. K. Hung Chan acknowledges partial financial support for this work by the Research Grant Council (RGC) of Hong Kong (project number UGC/FDS11/B03/18), Kenny Z. Lin acknowledges partial financial support from Lingnan University (grant number DR15A2) and Pauline W. Wong acknowledges partial financial support from Hang Seng University of Hong Kong (grant number URC-CRF-1516-06). All errors remain our own.

Keywords

Book-tax conformity
IFRS
book-tax tradeoff
earnings informativeness

Access to Document

10.1080/00014788.2021.1946764

https://www.tandfonline.com/doi/full/10.1080/00014788.2021.1946764

Cite this

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title = "Does IFRS convergence improve earnings informativeness? An analysis from the book-tax tradeoff perspective",

abstract = "Exploiting the convergence of tax-based accounting standards to the judgement-based International Financial Reporting Standards (IFRS) as an information shock, this study examines whether the decrease in book-tax conformity improves earnings informativeness in China from the book-tax tradeoff perspective. Using A-share firms which experience this drastic regulatory change as the treatment firms and B-share firms which are not subject to such change as the benchmark firms, we find a significant decrease in the earnings informativeness for A-share firms but not B-share firms, and that the decrease is most pronounced for firms with strong financial reporting incentives. Additional analyses reveal that the decreases in earnings informativeness are due to financial reporting changes rather than changes in economic conditions. Our results shed light on the importance of considering underlying institutional factors in assessing the impact of changes in financial reporting on earnings quality.",

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Does IFRS convergence improve earnings informativeness? An analysis from the book-tax tradeoff perspective

Abstract

Bibliographical note

Funding

Keywords

Access to Document

Other files and links

Book-tax Conformity and Reporting Aggressiveness

Cite this

Does IFRS convergence improve earnings informativeness? An analysis from the book-tax tradeoff perspective

Abstract

Bibliographical note

Funding

Keywords

Access to Document

Other files and links

Projects

Book-tax Conformity and Reporting Aggressiveness

Cite this