Do you have to adopt to adopt? : evidence on IFRS spillovers in conglomerates

Abstract

I study the impact of a parent firm's IFRS adoption on the accounting properties of their private non-IFRS-adopting European subsidiaries. In contrast to public European firms, private European firms are typically not required to adopt IFRS. I examine the private subsidiaries that do not adopt IFRS even though their parents do, and find spillover effects on the accounting properties of non-adopting subsidiaries as a result of parental adoption. I present evidence that private subsidiaries report lower earnings management after their parents are mandated to adopt, which I interpret as the subsidiary's earnings becoming more IFRS-like. There effects are stronger for subsidiaries whose parents have a larger ownership stake, and for subsidiaries that are located in a different country than their parent..