IDEAS home Printed from https://ideas.repec.org/a/ers/journl/vxxivy2021i3-part1p899-917.html
   My bibliography  Save this article

Does Adoption of Latest Modifications of IAS 16 Influence on Company’s Profitability? Evidence from European Companies

Author

Listed:
  • Piotr Luty
  • Milos Petkovic

Abstract

Purpose: This study aims to investigate the influence of applying IFRS on European companies’ profitability. The research focuses on adopting the new IFRS 16, specifically the accounting treatment of leases. The new standard introduces revolutionary changes in the treatment of leasing contracts. Many companies have moved away from IFRS, so it is essential to check the impact of IFRS on other companies. Design/Methodology/Approach: The study includes an analysis of two periods, before and after implementing IFRS 16 (leasing). In the study, we focus on specific sectors of economic activity. We examine the distributions of individual variables and compare the medians using parametric and non-parametric tests. The survey results indicate whether the implementation of IFRS 16 negatively affected the results of the companies. Findings: The study proves that adopting new IAS 16 related to leases does not negatively influence companies’ profitability than the previous treatment of this financial position within financial statements. This study confirms that European companies improve profitability by adopting new modifications of the IAS 16. Practical Implications: The study represents a motive for managers to accept new accounting treatments of leases that will create tangible value and generate further economic benefits. Originality/Value: We examined companies implementing new assumptions for the recognition of leasing. Contrary to the numerous voices of practitioners pointing to the negative effects of the implementation of IFRS 16, we showed that the implementation of IFRS 16 did not significantly change the profitability of companies. Thus, it can be indicated that the primary objective of introducing IFRS 16, to organize the recognition of company assets, has been met.

Suggested Citation

  • Piotr Luty & Milos Petkovic, 2021. "Does Adoption of Latest Modifications of IAS 16 Influence on Company’s Profitability? Evidence from European Companies," European Research Studies Journal, European Research Studies Journal, vol. 0(3 - Part ), pages 899-917.
    • Handle: RePEc:ers:journl:v:xxiv:y:2021:i:3-part1:p:899-917
    as

    Download full text from publisher

    File URL: https://ersj.eu/journal/2390/download
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Göttsche, Max & Küster, Stephan & Steindl, Tobias, 2021. "The usefulness of Non-IFRS segment data," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 43(C).
    2. Mary E. Barth & Wayne R. Landsman & Mark H. Lang, 2008. "International Accounting Standards and Accounting Quality," Journal of Accounting Research, Wiley Blackwell, vol. 46(3), pages 467-498, June.
    3. Holger Daske, 2006. "Economic Benefits of Adopting IFRS or US-GAAP - Have the Expected Cost of Equity Capital Really Decreased?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(3-4), pages 329-373.
    4. Leuz, C & Verrecchia, RE, 2000. "The economic consequences of increased disclosure," Journal of Accounting Research, Wiley Blackwell, vol. 38, pages 91-124.
    5. Mariarosaria Agostino & Danilo Drago & Damiano Silipo, 2011. "The value relevance of IFRS in the European banking industry," Review of Quantitative Finance and Accounting, Springer, vol. 36(3), pages 437-457, April.
    6. Bertrand, Jérémie & de Brebisson, Hélène & Burietz, Aurore, 2021. "Why choosing IFRS? Benefits of voluntary adoption by European private companies," International Review of Law and Economics, Elsevier, vol. 65(C).
    7. DeFond, Mark & Hu, Xuesong & Hung, Mingyi & Li, Siqi, 2011. "The impact of mandatory IFRS adoption on foreign mutual fund ownership: The role of comparability," Journal of Accounting and Economics, Elsevier, vol. 51(3), pages 240-258, April.
    8. Houqe, Muhammad Nurul & Monem, Reza M. & Tareq, Mohammad & van Zijl, Tony, 2016. "Secrecy and the impact of mandatory IFRS adoption on earnings quality in Europe," Pacific-Basin Finance Journal, Elsevier, vol. 40(PB), pages 476-490.
    9. Li, Bo & Megginson, William L. & Shen, Zhe & Sun, Qian, 2019. "Privatization effect versus listing effect: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 56(C), pages 369-394.
    10. Weetman, Pauline, 2018. "Financial reporting in Europe: Prospects for research," European Management Journal, Elsevier, vol. 36(2), pages 153-160.
    11. Houda Affes & Antonello Callimaci, 2007. "Les déterminants de l'adoption anticipée des normes comptables internationales : choix financier ou opportunisme ?," Comptabilité - Contrôle - Audit, Association francophone de comptabilité, vol. 13(2), pages 149-166.
    12. El-Helaly, Moataz & Ntim, Collins G. & Al-Gazzar, Manar, 2020. "Diffusion theory, national corruption and IFRS adoption around the world," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 38(C).
    13. Bonito, Ana & Pais, Cláudio, 2018. "The macroeconomic determinants of the adoption of IFRS for SMEs," Revista de Contabilidad - Spanish Accounting Review, Elsevier, vol. 21(2), pages 116-127.
    14. Karpuz, Ahmet & Kim, Kirak & Ozkan, Neslihan, 2020. "Does financial reporting regulation influence the value of cash holdings?," Journal of Empirical Finance, Elsevier, vol. 59(C), pages 52-67.
    15. Moritz Bassemir, 2018. "Why do private firms adopt IFRS?," Accounting and Business Research, Taylor & Francis Journals, vol. 48(3), pages 237-263, April.
    16. Jeanjean, Thomas & Stolowy, Hervé, 2008. "Do accounting standards matter? An exploratory analysis of earnings management before and after IFRS adoption," Journal of Accounting and Public Policy, Elsevier, vol. 27(6), pages 480-494.
    17. Emett, Scott A. & Nelson, Mark W., 2017. "Reporting accounting changes and their multi-period effects," Accounting, Organizations and Society, Elsevier, vol. 57(C), pages 52-72.
    18. Zeghal, Daniel & Mhedhbi, Karim, 2006. "An analysis of the factors affecting the adoption of international accounting standards by developing countries," The International Journal of Accounting, Elsevier, vol. 41(4), pages 373-386, 012.
    19. Fu, Jiangtao & Ogura, Yoshiaki, 2019. "Are Japanese companies less risky and less profitable than US companies? Evidence from a matched sample," Japan and the World Economy, Elsevier, vol. 51(C), pages 1-1.
    20. Emmanuel T. De George & Xi Li & Lakshmanan Shivakumar, 2016. "A review of the IFRS adoption literature," Review of Accounting Studies, Springer, vol. 21(3), pages 898-1004, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:ers:journl:v:xxiv:y:2021:i:3:p:899-917 is not listed on IDEAS
    2. Bertrand, Jérémie & de Brebisson, Hélène & Burietz, Aurore, 2021. "Why choosing IFRS? Benefits of voluntary adoption by European private companies," International Review of Law and Economics, Elsevier, vol. 65(C).
    3. Kim, Jong-Hoon & Fujiyama, Keishi & Koga, Yuya, 2024. "The effect of voluntary international financial reporting standards adoption on information asymmetry in the stock market: Evidence from Japan," Research in International Business and Finance, Elsevier, vol. 69(C).
    4. Chan, Ann L.-C. & Hsu, Audrey W.-H. & Lee, Edward, 2015. "Mandatory adoption of IFRS and timely loss recognition across Europe: The effect of corporate finance incentives," International Review of Financial Analysis, Elsevier, vol. 38(C), pages 70-82.
    5. El-Helaly, Moataz & Ntim, Collins G. & Soliman, Mark, 2020. "The Role of National Culture in International Financial Reporting Standards Adoption," Research in International Business and Finance, Elsevier, vol. 54(C).
    6. Marco Fasan & Carlo Marcon, 2018. "Accounting Choice under IFRS: The Role of Accounting Tradition and Managerial Opportunism," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 8(3), pages 209-223, July.
    7. Mihaela Ionascu & Ion Ionascu & Marian Sacarin & Mihaela Minu, 2018. "Benefits of global financial reporting models for developing markets: The case of Romania," PLOS ONE, Public Library of Science, vol. 13(11), pages 1-24, November.
    8. Christian Gross, 2016. "The Effect of the German Accounting Law Modernization Act on the Comparability of Private Local GAAP and IFRS Firms," Schmalenbach Business Review, Springer;Schmalenbach-Gesellschaft, vol. 17(3), pages 423-460, December.
    9. Paul André & Peter Walton & Dan Yang, 2012. "Voluntary adoption of IFRS: A study of determinants for UK unlisted firms," Post-Print hal-00935013, HAL.
    10. Marco Fasan & Carlo Marcon, 2014. "Accounting Tradition and other drivers of the Fair Value choice: An Opportunistic Management perspective," Working Papers 13, Venice School of Management - Department of Management, Università Ca' Foscari Venezia.
    11. Shahid Khan & Mark Anderson & Hussein Warsame & Michael Wright, 2015. "Do IFRS‐Based Earnings Announcements Have More Information Content than Canadian GAAP‐Based Earnings Announcements?," Accounting Perspectives, John Wiley & Sons, vol. 14(3), pages 276-302, September.
    12. Gatluak Gach Chuol Thony & Anthony Duku Peter, 2023. "The Impact of Adoption of International Financial Reporting Standard on Quality of Accounting Information in South Sudan: A Case Study of Kenya Commercial Bank and Cooperative Bank," International Journal of Science and Business, IJSAB International, vol. 19(1), pages 28-48.
    13. Md Humayun Kabir & Fawzi Laswad & Md Ainul Islam, 2010. "Impact of IFRS in New Zealand on Accounts and Earnings Quality," Australian Accounting Review, CPA Australia, vol. 20(4), pages 343-357, December.
    14. Guoping Liu & Jerry Sun, 2015. "Did the Mandatory Adoption of IFRS Affect the Earnings Quality of Canadian Firms?," Accounting Perspectives, John Wiley & Sons, vol. 14(3), pages 250-275, September.
    15. Chiu, She-Chih & Lin, Hsuan-Chu & Chien, Chin-Chen & Liang, Chia-Chen, 2022. "Does Form 20-F reconciliation elimination for IFRS filers affect the risk forecasting ability of accounting numbers?," Journal of Contemporary Accounting and Economics, Elsevier, vol. 18(3).
    16. Tan, Youchao & Zhu, Zhenmei & Zeng, Cheng & Gao, Minghua, 2014. "Does external finance pressure affect corporate disclosure of Chinese non-state-owned enterprises?," International Review of Financial Analysis, Elsevier, vol. 36(C), pages 212-222.
    17. Benjamin Poulard & Lionel Touchais, 2013. "Bilan de l’application des IAS/IFRS : vers une amélioration de la qualité de l’information financière ?," Post-Print hal-03125414, HAL.
    18. Ahmed, Kamran & Chalmers, Keryn & Khlif, Hichem, 2013. "A Meta-analysis of IFRS Adoption Effects," The International Journal of Accounting, Elsevier, vol. 48(2), pages 173-217.
    19. De George, Emmanuel T. & Li, Xi & Shivakumar, Lakshmanan, 2016. "A review of the IFRS adoption literature," LSE Research Online Documents on Economics 67599, London School of Economics and Political Science, LSE Library.
    20. Akisik, Orhan, 2020. "The impact of financial development, IFRS, and rule of LAW on foreign investments: A cross-country analysis," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 815-838.
    21. Pignatel, Isabelle & Tchakoute Tchuigoua, Hubert, 2020. "Microfinance institutions and International Financial Reporting Standards: An exploratory analysis," Research in International Business and Finance, Elsevier, vol. 54(C).

    More about this item

    Keywords

    Adoption; IFRS/IAS; profitability; European companies.;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L84 - Industrial Organization - - Industry Studies: Services - - - Personal, Professional, and Business Services

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ers:journl:v:xxiv:y:2021:i:3-part1:p:899-917. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Marios Agiomavritis (email available below). General contact details of provider: https://ersj.eu/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.