The influence of formal and informal institutional environments on intended and unintended consequences of IFRS convergence: multiple-levels, multiple-methodologies, an multidisciplinary perspectives

Global convergence with international financial reporting standards (IFRS) is the most remarkable ‘revolution’ in financial reporting (KPMG 2006; Brown and Tarca 2012). However, existing studies provide mixed evidence on outcomes of IFRS adoption (De George, Li, and Shivakumar 2016). Particularly, “[r]esearch into the effects of IFRS adoption on … decision making, and auditing is still in its infancy” (De George, Li, and Shivakumar 2016, p. 994). This thesis contributes to a growing body of new institutional accounting research and bridges the gaps in the existing IFRS literature by investigating the influence of multiple-levels of the institutional environment on IFRS using multiple-methodologies from multidisciplinary perspectives. The aim is to provide in-depth and comprehensive insights into the influence of formal and informal institutional environments on intended and unintended consequences of IFRS convergence in the largest IFRS adopter, China. Specifically, this thesis extends existing international accounting literature (which mostly focuses on firm-level using the archival approach) by comprehensively examining the influence of four levels; namely, nation-level, regional-level, firm-level, and individual-level of the unique Chinese institutional environment on IFRS convergence. This thesis combines archival research with experiments, and simple ordinary least squares (OLS) regression with hierarchical linear modelling (HLM). In doing so, this research shows experiments as a complement to archival research, not as an alternative. This thesis further highlights the important role that rigorous research methodologies play in enhancing accounting research. First, by conducting comprehensive theory-based archival research, two chapters of this thesis examine the influence of nation-level (Chapter 2), regional-level, and firm-level (Chapter 3) institutional environments and their simultaneous effects on IFRS convergence and earnings quality. Second, experiments in Chapter 4 and Chapter 5 are conducted using the Chinese professional auditors and managers, respectively, to examine the influence of individual-level characteristics on IFRS convergence and judgements and decision making. The findings show that after IFRS convergence, earnings quality has increased more for companies under a stronger institutional environment. Moreover, auditors tend to require more and higher quality of audit evidence under a stronger financial regulatory regime, and management is more likely to engage in opportunistic activities under a weak supervision environment. Overall, this thesis indicates that earnings quality and judgements and decision-making after IFRS convergence differ significantly within a single country, let alone globally, which may challenge the ultimate goal of IFRS convergence, i.e., de facto convergence. This reflects the nature of institutional environment embeddedness of IFRS and the requirement of extensive professional judgements. Thus, heterogeneity in the institutional environment of IFRS adopters and multiple-level institutional environments within a country should be taken into account to facilitate future IFRS development. Furthermore, significant differences in results based on different empirical methods reveal that rigorous research methodologies play an equally important role in understanding the outcomes of IFRS convergence. The results of this study can be used to facilitate future IFRS development and are of interest to global standard setters, international accounting firms, national regulators, national practitioners, international accounting researchers, and other transitional economies. Researchers may benefit from the application of the theoretical and methodological framework of this thesis to enhance understanding and research on economic consequences of IFRS convergence.