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

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
Number of pages	27
Journal	Accounting and Business Research
DOIs	https://doi.org/10.1080/00014788.2021.1946764
Publication status	E-pub ahead of print - 27 Aug 2021

Bibliographical note

Funding Information:
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.

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

Keywords

Book-tax conformity
IFRS
book-tax tradeoff
earnings informativeness

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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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note = "Funding Information: 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. Publisher Copyright: {\textcopyright} 2021 Informa UK Limited, trading as Taylor & Francis Group.",

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AU - WONG, Pauline W.

N1 - Funding Information: 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. Publisher Copyright: © 2021 Informa UK Limited, trading as Taylor & Francis Group.

PY - 2021/8/27

Y1 - 2021/8/27

N2 - 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.

AB - 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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JO - Accounting and Business Research

JF - Accounting and Business Research

ER -

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

Abstract

Bibliographical note

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

Keywords

Access to Document

Other files and links

Projects

Book-tax Conformity and Reporting Aggressiveness

Cite this