Title: Value relevance of discretionary accruals under environmental uncertainty: the incidence of IFRS and the country's legal regime

Authors: Denis Cormier; Marie-Josée Ledoux; Guy Villeneuve

Addresses: ESG, UQAM, P.O. Box 8888, Down Town Station, Montreal, Qc, H3C 3P8, Canada ' ESG, UQAM, P.O. Box 8888, Down Town Station, Montreal, Qc, H3C 3P8, Canada ' ESG, UQAM, P.O. Box 8888, Down Town Station, Montreal, Qc, H3C 3P8, Canada

Abstract: This paper studies whether IFRS adoption and the country's legal regime affect the value relevance of discretionary accruals under environmental uncertainty (measured by sales variability). The sample includes France and UK domiciles, providing a code/common law legal regime partition. We show that IFRS improve the value relevance of discretionary accruals to a larger extent in France than in the UK. Under local GAAP, discretionary accruals are more valued in the UK than in France while no significant difference is observed under IFRS, suggesting a marginal effect of the country%s legal regime. Under high uncertainty, results suggest that IFRS improve investors' ability to distinguish between earnings managed opportunistically and earnings management that provides a credible signal about future cash flows. Overall, IFRS would allow stock market participants to better assess properties of earnings management while reducing stock pricing discrepancies between code law and common law regimes.

Keywords: earnings management; environmental uncertainty; legal regime; IFRS adoption; International Financial Reporting Standards; value relevance; discretionary accruals; sales variability; France; UK; United Kingdom; cash flows; stock pricing discrepancies; code law; common law; stock markets.

DOI: 10.1504/IJAAPE.2015.068868

International Journal of Accounting, Auditing and Performance Evaluation, 2015 Vol.11 No.2, pp.161 - 187

Received: 08 May 2021
Accepted: 12 May 2021

Published online: 14 Apr 2015 *

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