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The Effect of IFRS Adoption on Financial Reporting Quality: A study of the Nordic Countries

Larsson, Erik LU and Montheli, Marcus LU (2025) BUSN79 20251
Department of Business Administration
Abstract
The global adoption of International Financial Reporting Standards (IFRS), developed by the International Accounting Standards Board (IASB), aims to enhance financial reporting transparency, comparability, and reliability by standardizing accounting practices and limiting managerial discretion. While IFRS has improved accounting quality in many regions, its impact depends on prior local GAAP quality and enforcement mechanisms. The Nordic countries - Denmark, Finland, Norway, and Sweden - with their robust pre-IFRS standards and strong judicial systems, offer a unique high-governance context to assess IFRS's effects. This thesis examines the impact of IFRS adoption on financial reporting quality in these nations over 1998–2008, spanning... (More)
The global adoption of International Financial Reporting Standards (IFRS), developed by the International Accounting Standards Board (IASB), aims to enhance financial reporting transparency, comparability, and reliability by standardizing accounting practices and limiting managerial discretion. While IFRS has improved accounting quality in many regions, its impact depends on prior local GAAP quality and enforcement mechanisms. The Nordic countries - Denmark, Finland, Norway, and Sweden - with their robust pre-IFRS standards and strong judicial systems, offer a unique high-governance context to assess IFRS's effects. This thesis examines the impact of IFRS adoption on financial reporting quality in these nations over 1998–2008, spanning seven years before and three years after the 2005 IFRS mandate for EU and EEA listed firms. Using metrics such as earnings management (SPOS) and timely loss recognition (LNEG), and controlling for industry differences, the study addresses a regional research gap. Grounded in Agency, Institutional, and Signaling Theories, the analysis employs logistic regression on 3,211 firm-year observations. Results show a non-significant increase in SPOS (from 0.03 to 0.04) and a significant decrease in LNEG (from 0.07 to 0.04), indicating that IFRS adoption did not reduce earnings management or enhance timely loss recognition. These findings suggest that IFRS's flexibility, combined with the Nordics' high-quality pre-IFRS GAAP and robust institutional frameworks, limited its impact on financial reporting quality, offering insights for accounting practice and research in high-governance settings. (Less)
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author
Larsson, Erik LU and Montheli, Marcus LU
supervisor
organization
course
BUSN79 20251
year
type
H1 - Master's Degree (One Year)
subject
keywords
IFRS, Financial Reporting Quality, Earnings Management, Timely Loss Recognition, Nordic Countries
language
English
id
9201350
date added to LUP
2025-06-26 15:40:55
date last changed
2025-06-26 15:40:55
@misc{9201350,
  abstract     = {{The global adoption of International Financial Reporting Standards (IFRS), developed by the International Accounting Standards Board (IASB), aims to enhance financial reporting transparency, comparability, and reliability by standardizing accounting practices and limiting managerial discretion. While IFRS has improved accounting quality in many regions, its impact depends on prior local GAAP quality and enforcement mechanisms. The Nordic countries - Denmark, Finland, Norway, and Sweden - with their robust pre-IFRS standards and strong judicial systems, offer a unique high-governance context to assess IFRS's effects. This thesis examines the impact of IFRS adoption on financial reporting quality in these nations over 1998–2008, spanning seven years before and three years after the 2005 IFRS mandate for EU and EEA listed firms. Using metrics such as earnings management (SPOS) and timely loss recognition (LNEG), and controlling for industry differences, the study addresses a regional research gap. Grounded in Agency, Institutional, and Signaling Theories, the analysis employs logistic regression on 3,211 firm-year observations. Results show a non-significant increase in SPOS (from 0.03 to 0.04) and a significant decrease in LNEG (from 0.07 to 0.04), indicating that IFRS adoption did not reduce earnings management or enhance timely loss recognition. These findings suggest that IFRS's flexibility, combined with the Nordics' high-quality pre-IFRS GAAP and robust institutional frameworks, limited its impact on financial reporting quality, offering insights for accounting practice and research in high-governance settings.}},
  author       = {{Larsson, Erik and Montheli, Marcus}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{The Effect of IFRS Adoption on Financial Reporting Quality: A study of the Nordic Countries}},
  year         = {{2025}},
}