new york august 1-5, 2009 s. cascino aaa 2009 annual meeting new york august 1-5, 2009 do harmonized...
TRANSCRIPT
New York August 1-5, 2009 S. Cascino
AAA 2009 Annual Meeting
New York August 1-5, 2009
Do harmonized accounting standards lead to harmonized accounting?German-Italian Evidence
Stefano CascinoUniversity of Naples Federico II
Joachim GassenHumboldt-Universität zu Berlin
2
Motivation
Regulation (EC) No. 1606/2002, Art. 1
New York August 1-5, 2009 S. Cascino
Regulation (EC) No. 1606/2002, Art. 1
33
Motivation
New York August 1-5, 2009 S. Cascino
Regulation (EC) No. 1606/2002, Art. 1
44
Motivation
New York August 1-5, 2009 S. Cascino
Regulation (EC) No. 1606/2002, Art. 1
55
Motivation
New York August 1-5, 2009 S. Cascino
Regulation (EC) No. 1606/2002, Art. 1
66
Motivation
New York August 1-5, 2009 S. Cascino
Regulation (EC) No. 1606/2002, Art. 1
77
Motivation
New York August 1-5, 2009 S. Cascino
Regulation (EC) No. 1606/2002, Art. 1
88
Motivation
New York August 1-5, 2009 S. Cascino
99
The quasi-experimental setting: Infrastructure (some stats)
Statistic Germany Italy
Market capitalization / GDP 63% 51%
Turnover / Market capitalization 205% 216%
% of market widely owned 50% 20%
% of market family owned 10% 15%
% of market state owned 25% 40%
% of market owned by financial institutions 15% 10%
Corruption Perception Index 7.8 (17/179) 5.2 (41/179)
Legal Right Index 8/10 5/10
Sources: See paper
New York August 1-5, 2009 S. Cascino
1010
Conceptual Research Question
Does the adoption of IFRS lead to harmonized accounting information across Germany and Italy?
...or do incentives prevail regardless of harmonized accounting standards?
New York August 1-5, 2009 S. Cascino
1111
Main Findings
‘Traditional’ earnings attributes metrics are inappropriate and lack power for testing
for economically significant differences in our setting
Differences in intangible assets recognition between German and Italian firms
mitigated by IFRS adoption
Significant differences in IFRS measurement and even more disclosure compliance
between German and Italian firms as well as between German late and early
adopters persist
These differences can be linked to firm-, region-, and country-level incentives
New York August 1-5, 2009 S. Cascino
1212
Some Recent Literature
Beuselink/Joos/van der Meulen (WP, 2007): Investigate earnings comparability
across EU from 1990-2005 using Ball/Shivakumar type accrual cash flow relation,
show increasing trend over time
Bradshaw/Miller (WP, 2007): Look at increased comparability of non-US firms cross-
listing in the U.S. investigating accounting choices (as provided by Worldscope) and
asymmetric timeliness as well as accrual/cash flow relations
De Franco/Kothari/Verdi (WP, 2008): construct a firm-specific measure of
accounting comparability using cross-industry earnings returns and earnings-other
earnings relations estimated on firm-specific time series. Show that this metric is
related to analyst forecast quality (precision, dispersion and bias)
New York August 1-5, 2009 S. Cascino
1313
Test Design
Investigate earnings attributes across Germany and Italy pre and post IFRS adoption
─ asymmetric timeliness
─ earnings smoothness
Study differences in intangible assets recognition across Germany and Italy pre and post IFRS
adoption
─ goodwill
─ other intangible assets
Study differences in 2006 IFRS compliance across Germany and Italy
─ measurement
─ disclosure
Test for compliance determinants
New York August 1-5, 2009 S. Cascino
1414
Data Background
Earnings attributes and levels of intangibles recognition are estimated for a
sample of 3,730 Italian and German public firm years over the 1998 to
2006 time period
─ Accounting data from Worldscope
─ Capital market data from Datastream
─ Propensity score matching used to match German on Italian firms
Compliance data has been hand-collected from the 2006 annual reports
─ 153 public Italian firms (full population)
─ 135 German late adopters (full population)
─ 117 German early adopters (matched on Italian firms)
New York August 1-5, 2009 S. Cascino
1515
The Problem of Earnings Attributes: Asymmetric Timeliness
Full SampleMatched Sample
Local GAAP IFRS Local GAAP IFRS
Parameter Estimate t Value Estimate t Value Estimate t Value Estimate t Value
Intercept 0.033 3.18*** 0.026 3.26*** 0.055 4.48*** 0.045 3.15***
ITALY 0.001 0.09 -0.003 -0.22 -0.021 -1.38 -0.023 -1.16
NEG 0.009 0.78 -0.010 -0.77 -0.007 -0.54 -0.011 -0.47
ITALY*NEG -0.022 -1.36 -0.009 -0.37 -0.006 -0.35 -0.007 -0.24
RETURN 0.020 1.00 0.011 0.69 0.018 0.78 -0.029 -0.85
ITALY*RETURN 0.015 0.53 0.024 0.61 0.017 0.58 0.064 1.29
NEG*RETURN 0.324 9.24*** 0.282 7.98*** 0.231 5.23*** 0.269 3.09***
ITALY*NEG*RETURN
-0.109 -2.15** -0.032 -0.31 -0.016 -0.29 -0.019 -0.14
n 3,056 2,030 2,004 708
Adj. R² 0.176 0.136 0.175 0.135
New York August 1-5, 2009 S. Cascino
1616
The Problem of Earnings Attributes: Earnings Smoothness
0
0.5
1
1.5
2
2.5
3
1998 1999 2000 2001 2002 2003 2004 2005 2006
GER GAAP
GER IFRS
ITA GAAP
ITA IFRS
SMOOTH: std(CFO)/std(NIBE)
SM
OO
TH
YEAR
New York August 1-5, 2009 S. Cascino
1717
Results: Intangibles Recognition local GAAP
Germany Matched Sample (n=846)
Variable Mean SD 25 % 50 % 75 % t-value Z-Score
INTASS 0.081 0.120 0.006 0.026 0.109 -5.91*** -9.03***
GOODWILL 0.040 0.083 0.000 0.000 0.042 -5.56*** -10.16***
OTHER_INTASS 0.040 0.087 0.003 0.008 0.030 -2.82*** -8.80***
Italy (n=906)
Variable Mean SD 25 % 50 % 75 %
INTASS 0.117 0.137 0.019 0.068 0.164
GOODWILL 0.064 0.097 0.000 0.023 0.085
OTHER_INTASS 0.053 0.096 0.008 0.019 0.052
New York August 1-5, 2009 S. Cascino
1818
Results: Intangibles Recognition IFRS
Germany Matched Sample (n=350)
Variable Mean SD 25 % 50 % 75 % t-value Z-score
INTASS 0.151 0.158 0.029 0.097 0.231 -0.27 0.07
GOODWILL 0.095 0.122 0.002 0.042 0.154 0.05 -0.37
OTHER_INTASS 0.056 0.107 0.007 0.018 0.053 -0.49 0.45
Italy (n=354)
Variable Mean SD 25 % 50 % 75 %
INTASS 0.155 0.164 0.025 0.092 0.232
GOODWILL 0.094 0.130 0.006 0.040 0.121
OTHER_INTASS 0.060 0.100 0.004 0.018 0.076
New York August 1-5, 2009 S. Cascino
1919
Results: Intangibles Recognition Multivariate Analysis
***/**/* marks two-sided significance for the interacted version of the model at the 1/5/10% level
Pre IFRS Post IFRS
Parameter Sign Estimate Pr > |t| Estimate Pr > |t|
LOG(MKTCAP) + 0.018 0.000 0.016 0.000
ROA +/- -0.114 0.007 -0.052 0.447
MTB + 0.000 0.944 0.004*** 0.003
LEVERAGE +/- 0.102 0.000 0.189** 0.000
FREQ_LOSSES + 0.016 0.225 0.028 0.211
ITALY +/- 0.013 0.019 -0.005* 0.700
Industry fixed effects Yes Yes
Year fixed effects Yes Yes
n (R²) 1,758 (0.494) 705 (0.570)
New York August 1-5, 2009 S. Cascino
2020
Results: 2006 IFRS Measurement Compliance Matched Sample
Germany Matched Italy
Standard n Mean SD n Mean SD t-value Z-score
IFRS 2 51 1.000 0.000 67 0.925 0.265 2.01** 1.98**
IAS 11 29 1.000 0.000 48 1.000 0.000 - 0.00
IAS 17 90 1.000 0.000 125 0.992 0.089 0.85 0.84
IAS 19 110 0.991 0.095 153 0.967 0.178 1.26 1.26
IAS 36 140 0.979 0.118 153 0.964 0.153 0.90 0.92
IAS 38 151 0.950 0.161 152 0.974 0.138 -1.36 -1.83*
IAS 39 121 0.936 0.149 132 0.978 0.100 -2.61*** -2.70***
New York August 1-5, 2009 S. Cascino
2121
Results: 2006 IFRS Disclosure Compliance Matched Sample
Germany Matched Italy
Standard n Mean SD n Mean SD t-value Z-score
IFRS 2 57 0.681 0.360 66 0.828 0.327 -2.37** -2.66***
IAS 11 29 0.874 0.226 49 0.673 0.357 2.71*** 2.62***
IAS 17 137 0.815 0.308 125 0.613 0.370 4.81*** 4.83***
IAS 19 117 0.686 0.296 153 0.673 0.320 0.76 0.51
IAS 33 153 0.887 0.209 153 0.840 0.273 1.71* 0.76
IAS 36 125 0.517 0.418 152 0.471 0.403 0.93 0.81
IAS 38 151 0.929 0.183 153 0.741 0.332 6.13*** 5.60***
IAS 39 122 0.633 0.351 131 0.691 0.384 -1.26 -1.73*
New York August 1-5, 2009 S. Cascino
2222
Results: Disclosure Compliance Determinants
Germany Italy (-***)
Parameter Sign Estimate Pr > |t| Estimate Pr > |t|
LOG(TOTASS) + 0.027 0.000 0.056** 0.000ROA +/- 0.005 0.955 0.801** 0.005
MTB + -0.001 0.601 0.008* 0.127FREQ_LOSSES + 0.053 0.156 0.090 0.115INDEP_BOARD_D + 0.052 0.010 0.083 0.011INSTOWN +/- -0.014 0.544 0.015 0.659GOVOWN +/- -0.041 0.414 -0.055 0.350FAMBUS - -0.034 0.219 0.007 0.859BIG4 + 0.047 0.035 0.140* 0.003LD_REGION - 0.018 0.653 -0.278*** 0.001EARLY + 0.104 0.000 Industry fixed effects Yes Yes
n (R²) 252 (0.350) 153 (0.466)
***/**/* marks two-sided significance for the interacted version of the model at the 1/5/10% level
New York August 1-5, 2009 S. Cascino
2323
Some limitations
Internal Validity
─ Quasi-experimental setting:
• Treatments country and accounting regime are not random
• Propensity score matching does not fully address this concern
─ Suitable proxies for comparability of accounting information
─ Limited sample of IFRS firm-years
─ Tests rely on models capturing economic reality
• Omitted variables?
• Endogeneity concerns?
External Validity
─ Private firms
─ Other (non-European) countries?
New York August 1-5, 2009 S. Cascino
2424
Conclusions
Stressing the importance of the limitations discussed above:
─ Earnings attributes are too noisy to document the impact of accounting rule
changes over short time horizons
─ We are able to document increased comparability after IFRS adoption
─ Nevertheless, differences in measurement and – more pronounced –
disclosure compliance remain and can be linked to country-, region- and
firm-level determinants
─ “It’s the standards and the incentives, stupid!”
New York August 1-5, 2009 S. Cascino
2525
AAA 2009 Annual Meeting
New York August 1-5, 2009
Thanks for Your Attention!
New York August 1-5, 2009 S. Cascino
2626
Motivation… Part two
Bushman/Piotroski, JAE 2006, p.145
New York August 1-5, 2009 S. Cascino
2727
Bushman/Piotroski, JAE 2006, p.145
Motivation… Part two
New York August 1-5, 2009 S. Cascino
2828
Test design: Address self-selection
Quasi-experimental design: The subjects are treated non-randomly
- Decision to IFRS differs across Germany and Italy
- Decision to go public differs across Germany and Italy
Propensity score matching technique is applied to match Italian firms
with German firms
Separately for local GAAP and IFRS firms the following logit model is
estimated
))(()1( ,4,3,2,1
9
1, itititit
jijit CFORETURNROAMKTCAPLOGINDDUMMYpITALYp
New York August 1-5, 2009 S. Cascino
2929
The quasi-experimental setting: IFRS adoption over time
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1998 1999 2000 2001 2002 2003 2004 2005 2006
GermanyItaly
% o
f IF
RS
YEAR
New York August 1-5, 2009 S. Cascino
3030
Test design: Address self-selection
Germany Full Sample
Germany Matched Sample Italy
Industry (first-digit SIC-Code) Frequency Percent Frequency Percent Frequency Percent
0 11 0.29 8 0.59 9 0.66
1 112 3.00 60 4.42 46 3.39
2 629 16.86 273 20.13 269 19.84
3 1309 35.09 487 35.91 451 33.26
4 317 8.50 243 17.92 298 21.98
5 478 12.82 79 5.83 91 6.71
7 698 18.71 184 13.57 179 13.20
8 168 4.50 16 1.18 13 0.96
9 8 0.21 6 0.44 0 0.00
Total 3,730 1,356 1,356
New York August 1-5, 2009 S. Cascino
3131
Results: Asymmetric Timeliness Full Sample
Local GAAP IFRS
Parameter Estimate t Value Estimate t Value
Intercept 0.033 3.18*** 0.026 3.26***
ITALY 0.001 0.09 -0.003 -0.22
NEG 0.009 0.78 -0.010 -0.77
ITALY*NEG -0.022 -1.36 -0.009 -0.37
RETURN 0.020 1.00 0.011 0.69
ITALY*RETURN 0.015 0.53 0.024 0.61
NEG*RETURN 0.324 9.24*** 0.282 7.98***
ITALY*NEG*RETURN -0.109 -2.15** -0.032 -0.31
n 3,056 2,030
Adj. R² 0.176 0.136
New York August 1-5, 2009 S. Cascino
3232
Results: Asymmetric Timeliness Matched Sample
Local GAAP IFRS
Parameter Estimate t Value Estimate t Value
Intercept 0.055 4.48*** 0.045 3.15***
ITALY -0.021 -1.38 -0.023 -1.16
NEG -0.007 -0.54 -0.011 -0.47
ITALY*NEG -0.006 -0.35 -0.007 -0.24
RETURN 0.018 0.78 -0.029 -0.85
ITALY*RETURN 0.017 0.58 0.064 1.29
NEG*RETURN 0.231 5.23*** 0.269 3.09***
ITALY*NEG*RETURN -0.016 -0.29 -0.019 -0.14
n 2,004 708
Adj. R² 0.175 0.135
New York August 1-5, 2009 S. Cascino
3333
Results: 2006 IFRS Measurement Compliance Late Adopters
Germany Late Italy
Standard n Mean SD n Mean SD t-value Z-score
IFRS 2 15 1.000 0.000 67 0.925 0.265 1.09 1.07
IAS 11 20 1.000 0.000 48 1.000 0.000 n/a n/a
IAS 17 75 0.987 0.115 125 0.992 0.089 -0.37 -0.36
IAS 19 111 0.991 0.095 153 0.967 0.178 1.27 1.27
IAS 36 120 0.950 0.176 153 0.964 0.153 -0.70 -0.78
IAS 38 135 0.930 0.185 152 0.974 0.138 -2.30** -2.81***
IAS 39 107 0.898 0.217 132 0.978 0.100 -3.77*** -3.90***
New York August 1-5, 2009 S. Cascino
3434
Results: 2006 IFRS Disclosure Compliance Late Adopters
Germany Late Italy
Standard n Mean SD n Mean SD t-value Z-score
IFRS 2 17 0.559 0.328 66 0.828 0.327 -3.03*** -3.23***
IAS 11 21 0.810 0.249 49 0.673 0.357 1.59 1.38
IAS 17 120 0.772 0.343 125 0.613 0.370 3.48*** 3.67***
IAS 19 121 0.607 0.318 153 0.673 0.320 -1.27 -1.49
IAS 33 136 0.827 0.231 153 0.840 0.273 -0.42 -1.77*
IAS 36 105 0.324 0.334 152 0.471 0.403 -3.09*** -2.88***
IAS 38 135 0.877 0.240 153 0.741 0.332 3.93*** 3.58***
IAS 39 107 0.460 0.305 131 0.691 0.384 -5.06*** -5.35***
New York August 1-5, 2009 S. Cascino