Investor perception of the International Accounting Standards Quality: Inferences from Germany

The paper analyses whether the adoption of the IAS regime implies an improvement of the firms’ earnings quality. Referring to a sample of German listed companies reporting under the IAS and German GAAP (HGB) in 2000-2004 years, we first examine whether IAS adopters are less subject to earnings management. Our findings show that, in general, the IAS subsample exhibits a level of earnings management lower or equal to the HGB adopters. Secondly, we investigate whether investors perceive a lower level of uncertainty and information asymmetry for earnings under the IAS regime, after controlling for the level of the discretionary accruals. We find that the IAS adoption entails a lower information asymmetry, but this benefit decreases with the firm size. This means that investors perceive the benefits of higher-quality accounting standards as partially offset by a greater managerial discretion in the small and medium size firms.