The Effect of IFRS Adoption and Investor Protection on Earnings Quality Around the World

Abstract

This study examines the effects of mandatory IFRS adoption and investor protection on the quality of accounting earnings in forty-six countries (around the globe). The results suggest that earnings quality increases for mandatory IFRS adoption when a country’s investor protection regime provides stronger protection. This study extends the current literature that shows that accounting practices are influenced by country level macro settings. The results highlight the importance of investor protection for financial reporting quality and the need for regulators to design mechanisms that limit managers’ earnings management practices.