We examine whether the adoption of internationally recognized accounting standards is associated with a greater sensitivity of credit ratings to accounting information. We find that credit ratings are significantly more sensitive to the accounting default factor post voluntary International Financial Reporting Standards (IFRS)/U.S. Generally Accepted Accounting Principle (GAAP) adoption. Similar evidence is also found post mandatory IFRS adoption in countries with strong rules of law. Collectively, the above evidence suggests that firms' incentives to comply are important in determining the consequences of accounting standard changes.
Bibliographical noteFunding Information:
The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: Financial support is provided by the Simon School of Business at the University of Rochester and the Carlson School of Management at the University of Minnesota.
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- Credit markets
- Credit relevance
- Internationally recognized accounting standards