Does stepping-back from IFRS pay off? Evidence from European unlisted firms’ cost of debt

This study examines the association between voluntarily stepping back from IFRS to national GAAP and the cost of debt among European unlisted firms. Using a dataset of 42,987 observations from seven European countries between 2012 and 2022, we find that companies reverting to national GAAP are associated with a lower cost of debt after stepping back. This finding remains consistent regardless of their earnings management level after the transition. Unlike earlier evidence suggesting that IFRS adoption initially reduced the cost of debt, our results, based on a more recent time series, reflect a shift in lender perception. Having observed unlisted firms report under IFRS for several years, lenders may have come to view national GAAP as equally or even more reliable for assessing credit risk in the private firm context.