Does transition to IFRS substantially affect key financial ratios in shareholder-oriented common law regimes? Evidence from the UK
Publikation: Beiträge in Zeitschriften › Zeitschriftenaufsätze › Forschung › begutachtet
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in: Advances in Accounting, Jahrgang 30, Nr. 1, 2014, S. 241-250.
Publikation: Beiträge in Zeitschriften › Zeitschriftenaufsätze › Forschung › begutachtet
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TY - JOUR
T1 - Does transition to IFRS substantially affect key financial ratios in shareholder-oriented common law regimes?
T2 - Evidence from the UK
AU - Lueg, Rainer
AU - Punda, Pawel
AU - Burkert, Michael
PY - 2014
Y1 - 2014
N2 - This paper provides evidence of how a transition to IFRS affects key financial ratios and the pertinent financial statement items. Building on Lantto and Sahlström's (2009) evidence from creditor-oriented code law regimes, we examine the impact of IFRS transition on listed companies in the shareholder-oriented common law regime of the UK. The study contributes two insights: First - despite their similarities - conversion from the UK General Accepted Accounting Principles (GAAP) to IFRS leads to substantial differences in key financial ratios. These even surpass differences reported by companies in creditor-oriented code law regimes. We find that medians of profitability ratios increased substantially: Operating Income Margin (OPM) increased by 10.8%, Return on Equity (ROE) by 27.0%, and Return on Invested Capital (ROIC) by 14.4%. The Current Ratio (CR) and Price-to-Earnings (P/E) Ratio also exhibit significant but less drastic changes of 4.2% and - 2.9%, respectively. Second, differences in shareholder-oriented common law regimes have the same causes as in creditor-oriented code law regimes, i.e., an increase in Operating Income, Net Income, Current Liabilities and Invested Capital, as well as a decrease in Shareholder Equity.
AB - This paper provides evidence of how a transition to IFRS affects key financial ratios and the pertinent financial statement items. Building on Lantto and Sahlström's (2009) evidence from creditor-oriented code law regimes, we examine the impact of IFRS transition on listed companies in the shareholder-oriented common law regime of the UK. The study contributes two insights: First - despite their similarities - conversion from the UK General Accepted Accounting Principles (GAAP) to IFRS leads to substantial differences in key financial ratios. These even surpass differences reported by companies in creditor-oriented code law regimes. We find that medians of profitability ratios increased substantially: Operating Income Margin (OPM) increased by 10.8%, Return on Equity (ROE) by 27.0%, and Return on Invested Capital (ROIC) by 14.4%. The Current Ratio (CR) and Price-to-Earnings (P/E) Ratio also exhibit significant but less drastic changes of 4.2% and - 2.9%, respectively. Second, differences in shareholder-oriented common law regimes have the same causes as in creditor-oriented code law regimes, i.e., an increase in Operating Income, Net Income, Current Liabilities and Invested Capital, as well as a decrease in Shareholder Equity.
KW - Code law
KW - Common law
KW - IFRS
KW - Ratio
KW - Reconciliation
KW - Transition
KW - UK GAAP
KW - Management studies
UR - http://www.scopus.com/inward/record.url?scp=84901631396&partnerID=8YFLogxK
U2 - 10.1016/j.adiac.2014.03.002
DO - 10.1016/j.adiac.2014.03.002
M3 - Journal articles
AN - SCOPUS:84901631396
VL - 30
SP - 241
EP - 250
JO - Advances in Accounting
JF - Advances in Accounting
SN - 0882-6110
IS - 1
ER -