International accounting Standards and Accounting Quality

We compare characteristics of accounting data for firms that adopt International Accounting Standards (IAS) to a matched sample of firms that do not to investigate whether reporting under IAS is associated with predictable differences in accounting quality and cost of capital. After IAS adoption, firms evidence less earnings management, more timely loss recognition, and more value relevance of accounting data than firms that do not adopt. Also, IAS adopting firms evidence higher accounting quality after adoption than before suggesting that IAS adoption is associated with an improvement in accounting quality. While more speculative, our results also provide weak evidence that IAS-adopting firms may enjoy lower cost of capital after adoption than non-adopting firms, and a reduction in cost of capital following adoption. Overall, our results suggest an improvement in accounting quality associated with IAS adoption.