ABSTRACT
This study examines whether accounting quality changed for a diverse set of German firms that were required to switch accounting standards from U.S. Generally Accepted Accounting Principles (U.S. GAAP) to International Financial Reporting Standards (IFRS) (MANDATORY sample). Additionally, we utilize a control sample of German firms that report using IFRS during the entire sample period (CONTROL sample). In both the MANDATORY and CONTROL samples, we find evidence of decreased conditional conservatism, increased value relevance of earnings, and smoother earnings surrounding the mandatory IFRS adoption period. Further, we find no evidence that these changes in accounting quality proxies are significantly different between the MANDATORY and CONTROL samples. While we do not draw causal inferences, results are consistent with the notion that other concurrent changes within Germany, such as economic shocks or the changes in the institutional environment (e.g., enforcement system) documented in Christensen, Hail, and Leuz (2013), are driving the observed changes in accounting quality, rather than the transition from U.S. GAAP to IFRS.
