Mari Paananen

The amendment of IAS 39: Determinants of reclassification behavior and capital market consequences

This study examines the determinants of banks’ decision to reclassify financial assets under the amendment of International Accounting Standard (IAS) 39 and the capital market consequences of these reclassifications. Based on the prior literature, the authors identify two possible drivers of banks’ reclassification behavior, namely, solvency concerns and exposure to financial markets. The authors expect these reclassifications to adversely affect the market pricing of banks’ accounting numbers. The results of this study show that capital adequacy ratios close to the minimum requirement are indeed associated with banks’ decisions to reclassify financial assets. Furthermore, the authors find evidence that the level of exposure to fair value measurement also increases the probability to reclassify. In the second part of the analyses, they use a difference-in-differences approach to test the market’s pricing of bank’s accounting numbers around the time of reclassification. They observe that for reclassifying banks, investors rely less on earnings and book value of equity after the reclassifications than before. However, before the amendment of IAS 39, the authors find no difference in investors’ pricing of the accounting numbers of a control group of non-reclassifying banks and those of the reclassifying banks.

Causes and Consequences of Improvements in the Information Environment for Swedish Small and Mid-Sized Firms

Abstract We investigate improvements in the information environment and financing decisions for Swedish small and mid-sized firms. These firms are required to file audited annual reports. We create an index capturing accounting standards choices, auditor quality, and board size reflecting information environment improvements. We find an association between increased short-term financing and information environment improvements: The most common actions are to switch to a Big 4 auditor or a chartered accountant and to add independent board members as opposed to changing the accounting standards used. These improvements are associated with a switch to long-term debt and a reduction of cost of debt. Our findings are relevant for the ongoing discussion on accounting regulation for private firms both in the USA and Europe since they show that (Swedish) private firms use other ways to improve the information environment in order to access to less costly long-term bank debt besides adopting International Financial Reporting Standards.

Corporate governance and accounting in small growing firms: a comparison of financial reporting and cost of debt across Gazelles and Non-Gazelles

This Handbook provides a unique collection of research addressing issues of corporate governance in entrepreneurial contexts, including start-ups, owner-managed firms, fast-growing firms, and IPOs, as well as how corporate governance and board leadership is associated with entrepreneurship and innovation in both small and large established companies. The chapters span a wide range of topics, methodologies, and levels of analysis, all designed to contribute to a comprehensive understanding of when and how corporate governance matters in different entrepreneurial contexts.

Regulation-Induced Disclosures: Is 'More' Actually 'Less'?

Regulators and practitioners have expressed concerns that accounting disclosures have become too much and too complex resulting in negative consequences for companies and financial statement users. We investigate whether more regulation-induced disclosures are associated with more effort to prepare and use financial statements. We create an index measuring firms’ exposure to regulation-induced disclosures. We show that a higher index is associated with longer 10-Ks, a longer reporting delay and higher audit fees. A higher index is also associated with fewer analysts following the firm, lower analyst accuracy and a higher dispersion. Our findings suggest that increases in regulation-induced disclosures have unintended consequences.

What Is the Way Forward for IASB’s Research Programme under the Evidence-Supported Approach? Some Analyses and Comments Based on the 2015 Agenda Consultation

Abstract The purpose of this paper is twofold: (1) the paper reviews the International Accounting Standards Board (IASBs) evidence-supported approach to standard setting, in particular the very broad definition of evidence that does not distinguish between scientific evidence used for developing the normative foundation (the standards) and observations in practice. Based on comparisons with medicine and auditing, we argue that there are good reasons for the IASB to separate scientific evidence from other sources of information. As producers of scientific evidence, the academic community must consider whether better alignment between publishing incentives and standard setting can be achieved. (2) Examining the 2015 Agenda Consultation, the ‘top-five’ research projects were identified: ‘Disclosure Initiative – Principles of Disclosure’, ‘Primary Financial Statements’, ‘Financial Instruments with Characteristics of Equity’, ‘Business Combinations under Common Control’, and ‘Goodwill and Impairment’. In order to further support evidence-informed standard setting, we provide research-based comments on these projects (based on the European Accounting Associations Agenda Consultation comment letter).