Journal of International Accounting, Auditing and Taxation 19 (2010) 55–65

Contents lists available at ScienceDirect

Journal of International Accounting,

Auditing and Taxation

The post-adoption effects of the implementation of International

Financial Reporting Standards in Greece
George Iatridis a,∗ , Sotiris Rouvolis b
a
University of Thessaly, Department of Economics, 43 Korai street, 38 333 Volos, Greece
b
Eurovoli AEED, Greece

a r t i c l e i n f o a b s t r a c t

Keywords: This study investigates the effects of the transition from Greek GAAP to IFRS on the finan-
International Financial Reporting Standards cial results of Greek listed firms. The study also examines the factors associated with the
Greek GAAP
provision of voluntary IFRS disclosures before the official period of adoption, the degree of
Financial statement effects
earnings management under IFRS, and the value relevance of IFRS-based accounting num-
Voluntary IFRS disclosures
Earnings management bers. The findings show that the implementation of IFRS has introduced volatility in key
Value relevance income statement and balance sheet measures of Greek firms. Although the effects of IFRS
adoption in the first year of adoption appear to be unfavourable, perhaps due to the IFRS
transition costs, firms’ financial measures improved significantly in the subsequent period.
This result explains why in the official adoption period there is some evidence of earnings
management, which is reduced in the subsequent period. The factors associated with pro-
viding voluntary IFRS disclosures before the official period of adoption include firm size
and debt and equity financing needs. The study provides evidence that IFRS adoption leads
to more value relevant accounting measures.
© 2009 Elsevier Inc. All rights reserved.

1. Introduction

The globalisation of international financial markets has increased the need for world-wide comparable accounting stan-
dards and regulation (Zarzeski, 1996). The required implementation of International Financial Reporting Standards (IFRS)
by listed firms that operate in member-states of the European Union, as of January 1, 2005, should assist investors in their
decision-making and enhance stock market efficiency (Botosan & Plumlee, 2002; Healy & Palepu, 2001; Leuz, 2003). At the
same time, the world-wide acceptance of IFRS may indicate their high quality (Tendeloo & Vanstraelen, 2005).
Compliance with IFRS is compulsory for listed firms in Greece. Firms listed on the Athens Stock Exchange have been
using IFRS since January 2005. Firms that are not listed use Greek GAAP. The transition from Greek GAAP to international
accounting standards may have an effect on firms’ financial results. This outcome may motivate firms to develop adjustment
mechanisms to overcome potential adverse consequences of IFRS implementation (Tarca, 2004) and could lead to behaviour
aimed at improving certain accounting variables, such as profitability and compensation, avoiding debt covenant violation,
and reinforcing firm financial position (Weil, Fung, Graham, & Fagotto, 2006).
This study examines the impact of the adoption of IFRS on the financial performance of firms listed on the Athens Stock
Exchange. This study also seeks to identify the financial attributes of firms that voluntarily abided by the requirements of
IFRS before the mandated adoption date. Finally, the paper investigates whether IFRS adoption reduces the level of earnings
management and enhances the value relevance of IFRS-based accounting numbers.

∗ Corresponding author. Tel.: +30 24210 44810; fax: +30 24210 74772.
E-mail address: giatridis@econ.uth.gr (G. Iatridis).

1061-9518/$ – see front matter © 2009 Elsevier Inc. All rights reserved.
doi:10.1016/j.intaccaudtax.2009.12.004
56 G. Iatridis, S. Rouvolis / Journal of International Accounting, Auditing and Taxation 19 (2010) 55–65

The study examines the periods before and after the official adoption of IFRS. The focus of the study is on firms that
adopted IFRS after 2005 (mandatory IFRS adopters) and on firms that provided voluntary IFRS disclosures before the official
implementation of IFRS (voluntary IFRS disclosers). Before 2005, firms had to abide by the Greek GAAP. There was no option
to voluntarily adopt IFRS before 2005. Thus, voluntary IFRS disclosers are firms that prior to 2005 used the Greek GAAP and
simultaneously provided disclosures on IFRS in a voluntary manner.
The study shows that in the year of first adoption, 2005, firms tended to exhibit lower key accounting measures, such as
profitability, liquidity and growth, most likely due to the fair value orientation of IFRS and the associated transition costs.
In the subsequent year, firms displayed improved financial measures. The provision of voluntary IFRS disclosures before
the official adoption period is associated with large size and strong debt and equity financing needs. The scope for earnings
management is significantly reduced in the post-adoption period while in their first adoption year, firms tended to manage
their accounting numbers in an effort to mitigate adverse results from the adoption of IFRS. The findings also show that the
use of IFRS appeared to lead to accounting measures with higher value relevancy.
The remainder of the study is organised as follows. Section 2 presents the background of the study. Section 3 discusses
the research hypotheses. Section 4 describes the data while Section 5 discusses the results, and Section 6 presents the
conclusions.

2. Background

Studies have shown that the factors that influence the decision to provide voluntary IFRS-based disclosures include size,
profitability and leverage, which are larger for voluntary IFRS disclosers (Dumontier & Raffournier, 1998; Glaum, 2000; Tarca,
2004), and international exposure and dispersion of ownership (Gassen & Sellhorn, 2006). Prior research has also shown
that the use of IFRS enhances comparability and quality of accounting information, and leads to accounting harmonisation,
investment growth and lower cost of capital (Barth, Landsman, & Lang 2005). Renders and Gaeremynck (2007) report that
IFRS implementation is accompanied by less earnings management.
The transition to IFRS presents firms with difficulties including technical differences, the cost of change and adjustment,
the time factor, and the insufficient experience and knowledge (Brown & Tarca, 2005; Gassen & Sellhorn, 2006). In addition,
the fair value orientation of IFRS is likely to introduce volatility in book values and reported earnings (Andrews, 2005;
Barth et al., 2005; Goodwin & Ahmed, 2006; Hung & Subramanyam, 2007), and consequently, distort the financial profile
of adopting firms. These considerations may influence the financial behaviours of firms and may motivate them to redefine
their strategies and decision-making processes in order to mitigate the adverse impact of adoption on their accounting
numbers (Jermakowicz & Gornik-Tomaszewski, 2006).
Financial reporting under IFRS appears to provide more information about company performance (Adams, Weetman, &
Gray, 1993). Countries with strong investor-protection mechanisms and regulation in place are likely to experience lower
IFRS transition costs (Capkun, Cazavan-Jeny, Jeanjean, & Weiss, 2007; Lantto, 2005; Renders & Gaeremynck, 2007). Hence,
the institutional background of a country may influence the effects of IFRS adoption.
The main differences between Greek GAAP and IFRS (see Grant Thornton, 2007) relate to the presentation of financial
results, the readjustment of value of real estates, the accounting treatment and depreciation of certain tangible and intangible
fixed assets, research and development expenditure and capitalisation criteria, pricing and evaluation of securities and
financial instruments, deferred taxation, distinction between operating and financial leasing, post-employment employee
benefits, provisions, consolidation criteria and methods, and accounting for goodwill and goodwill amortisation.

3. Research hypotheses

3.1. IFRS transition and financial statement effects

The study examines the impact of the transition from Greek GAAP to IFRS on the financial performance of Greek listed
firms. As noted in Section 2, the implementation of IFRS would be expected to have a favourable impact on firms’ financial
performance and financial reporting quality. Given that the differences between the two financial reporting regimes may
be substantial in terms of measurement, recognition and disclosure, the impact of IFRS adoption is likely to be significant.
Also, the fair value orientation of IFRS would be expected to introduce volatility in the IFRS-based accounting numbers. The
hypothesis that is tested is as follows:

H1 . The financial results reported under the Greek GAAP are significantly different than those reported under IFRS.

To test H1 , the study compares the financial results of firms that adopted IFRS in 2005 with the 2004 IFRS comparative
figures that were previously Greek GAAP-based and that accompany the 2005 IFRS disclosures. The study also compares
the IFRS-based financial results reported in 2005 with those reported in the post-official adoption period, 2006. This set of
analyses investigates how firms have been affected by IFRS and how they have adjusted over time. The logistic regression
models used are as follows.

RRi,t = a0 + a1 Sizei,t + a2 Dividendi,t + a3 Growthi,t + a4 Profitabilityi,t + a5 Liquidityi,t + a6 Leveragei,t + ei,t (1)

 G. Iatridis, S. Rouvolis / Journal of International Accounting, Auditing and Taxation 19 (2010) 55–65 57

PAi,t = a0 + a1 Sizei,t + a2 Dividendi,t + a3 Growthi,t + a4 Profitabilityi,t + a5 Liquidityi,t + a6 Leveragei,t + ei,t (2)

where RRi,t is a dummy variable indicating the regulatory regime. RRi,t = 1 for financial numbers reported under IFRS and
RRi,t = 0 for financial numbers reported under the Greek GAAP; PAi,t is a dummy variable indicating the post-adoption effects.
PAi,t = 1 for financial numbers reported under IFRS in 2006 and PAi,tt = 0 for financial numbers reported under IFRS in 2005;
Profitabilityi,t , Growthi,t , Leveragei,t , Liquidityi,t , Sizei,t , and Dividendi,t are proxies used to control for firm profitability, growth,
leverage, liquidity, size and dividend respectively (see Appendix B); and ei,t is the error term.

3.2. Voluntary IFRS disclosure in the pre-official adoption period

The adoption of IFRS enhances transparency, disclosure and comparability (Biddle & Saudagaran, 1989). The implementa-
tion of IFRS leads to lower cost of capital and transaction costs, higher market value and better reputation (Leuz & Verrecchia,
2000). The higher disclosure requirements and financial reporting quality that stem from adopting IFRS should reduce infor-
mation asymmetry and give a positive signal to investors (Tarca, 2004). Thus, in the period prior to the official IFRS adoption,
firms may be motivated to provide voluntary IFRS-based accounting disclosures in order to impress market participants and
improve their financial profile and/or obtain debt and equity capital (see El-Gazzar, Finn, & Jacob, 1999).
In Greece, there was no option of adopting IFRS before the official adoption date. Greek GAAP was in force prior to 2005.
Firms, however, could provide voluntary IFRS disclosures in the pre-adoption period. This study compares the financial
attributes of firms that voluntarily provided IFRS disclosures to those firms that did not provide voluntary IFRS disclosures
in the pre-adoption period of 2004 (see also Iatridis, 2008a). The hypothesis that is tested is:

H2 . Firms that provided voluntary IFRS disclosures are significantly different than firms that did not provide voluntary IFRS
disclosures.

The study uses the following regression model:

VDi,t = a0 + a1 Sizei,t + a2 Dividendi,t + a3 Growthi,t + a4 Profitabilityi,t + a5 Liquidityi,t + a6 Leveragei,t

+a7 CSi,t + a8 DEBTi,t + ei,t (3)

where VDi,t is a dummy variable indicating voluntary IFRS disclosure. VDi,t = 1 for voluntary IFRS disclosers and VDi,t = 0 for
non-voluntary IFRS disclosers; CSi,t is a dummy variable indicating the equity financing needs of firms. CSi,t = 1 for firms
that raised capital during the period under investigation and CSi,t = 0 otherwise; and DEBTi,t is a dummy variable indicating
the debt financing needs of firms. DEBTi,t = 1 for firms that issued debt during the period under investigation and DEBTi,t = 0
otherwise. All other variables are defined as in Eqs. (1) and (2).

3.3. IFRS and earnings management

The study investigates whether the transition to IFRS reduces earnings management. IFRS require firms to provide infor-
mative accounting disclosures and enhance the investor-protection mechanisms that are in place, thereby improving the
quality of financial reporting. Hence, the adoption of IFRS would be expected to lead to lower opportunism and earnings
management (Leuz, 2003). The hypothesis tested is as follows:

H3 . IFRS adoption reduces earnings management.

The first earnings management test involves examining the volatility of the change in net profit scaled by total assets,
NP, and the volatility of the change in net profit, NP, to the change in operating cash flows, CF. Less volatile figures
provide evidence of earnings management. The investigation focuses on normal adopters and compares the accounting
numbers reported in the official adoption period with those reported in the pre-official adoption period.
The second earnings management test examines the association between accruals and cash flows. The study first evaluates
the Pearson correlation between accruals and cash flows separately in the pre-official, official and post-official adoption
periods. A negative correlation is an indication of earnings management, since firms tend to influence their accruals upwards
when cash flows appear to be lower (Land & Lang, 2002; Myers & Skinner, 2002). The study then uses an Ordinary Least
Square (OLS) regression to investigate the association between accruals and cash flows, profitability, leverage and size. This
analysis focuses on normal adopters using accounting numbers based on the Greek GAAP for the pre-official adoption period
and accounting numbers based on IFRS for the official and post-official adoption periods, respectively. The regression model
that is used is as follows (see Tendeloo & Vanstraelen, 2005; Iatridis, 2008b):

ACCRi,t = a0 + a1 FRSi,t + a2 FRSOCFi,t + a3 FRSLNMVi,t + a4 FRSOPMi,t + a5 FRSTLSFUi,t + ei,t (4)

where ACCRi,t is accruals scaled by total assets. As in Barth, Cram, and Nelson (2001), Barth et al. (2005) and Dechow and Ge
(2006), accruals equal earnings less cash flows from operating activities; FRSi,t is a dummy variable indicating the financial
reporting system in use. FRSi,t = 1 for firms reporting under IFRS in 2005 and FRSi,t = 0 for firms reporting under the Greek
GAAP in 2004; FRSOCFi,t is a variable used to examine the impact of IFRS on the association between accruals and cash flows.
It is the multiplication of FRS and operating cash flows (OCF); FRSLNMVi,t is a variable used to examine the impact of IFRS on
58 G. Iatridis, S. Rouvolis / Journal of International Accounting, Auditing and Taxation 19 (2010) 55–65

the association between accruals and size. It is the multiplication of FRS and the natural logarithm of market value (LNMV);
FRSOPMi,t is a variable used to examine the impact of IFRS on the association between accruals and profitability. It is the
multiplication of FRS and operating profit margin (OPM); FRSTLSFUi,t is a variable used to examine the impact of IFRS on the
association between accruals and leverage. It is the multiplication of FRS and total liabilities to shareholders’ funds (TLSFU);
and ei,t is the error term.
The third earnings management test examines whether firms attempt to report small positive profits rather than losses
or influence the timing of losses (see Burgstahler & Dichev, 1997; Leuz, Nanda, & Wysocki, 2003). Studies suggest that in
the presence of earnings management, large losses tend not to be frequent (Ball, Kothari, & Robin, 2000; Lang, Raedy, &
Wilson, 2005). The analysis focuses on normal adopters and compares the accounting numbers reported under IFRS with
those reported under the Greek GAAP, using the logit model below (see also Iatridis, 2008b):

RRi,t = a0 + a1 Profitabilityi,t + a2 Growthi,t + a3 Leveragei,t + a4 Liquidityi,t + a5 Sizei,t + a6 Dividendi,t + a7 SPi,t

+ a8 LLi,t + ei,t (5)

where SPi,t is a dummy variable indicating a measure of small positive profits. SPi,t = 1 if net profit scaled by total assets is
between 0 and 0.01 (see Lang, Lins, & Miller, 2003; Barth et al., 2005) and SPi,t = 0 otherwise; and LLi,t is a dummy variable
indicating a measure of timely loss recognition. LLi,t = 1 if net profit scaled by total assets is less than −0.20 (see Lang, Lins,
et al., 2003; Lang, Raedy, et al., 2005) and LLi,t = 0 otherwise. All other variables are defined as in Eqs. (1) and (2).

3.4. Value relevance and IFRS

Prior research indicates that the IFRS-based accounting numbers tend to exhibit higher quality and value relevance (Barth,
Cram, et al., 2001; Barth, Landsman, et al., 2005). To determine if that is the case in Greece, the following hypothesis is tested:

H4 . Accounting measures reported under IFRS exhibit higher value relevance.

The first value relevance test is an OLS regression of share price on book value per share and net profit per share. The
analysis focuses on normal adopters and compares their IFRS-based financial numbers reported in 2005 with their Greek
GAAP-based financial numbers reported in 2004. A similar comparison is then drawn between 2005 and 2006. The model is
as follows (see Barth et al., 2005; Hung & Subramanyam, 2007; Iatridis, 2008b):

Pi,t = a0 + a1 BVPSi,t + a2 NPPSi,t + ei,t (6)

where Pi,t is total market value of equity at year-end deflated by number of shares outstanding; BVPSi,t is total book value of
equity deflated by number of shares outstanding; NPPSi,t is total net profit deflated by number of shares outstanding; and
ei,t is the error term.
The second value relevance test is an OLS regression of profits on stock returns using the same sample considerations
as above. High quality profits would be expected to exhibit higher association with stock returns. The model is presented
below (see Barth et al., 2005; Lang et al., 2005; Iatridis, 2008b):

NPPi,t = a0 + a1 ARi,t + ei,t (7)

where NPPi,t is net profit divided by beginning of year share price; ARi,t is the annual stock return at year-end. ARi,t is calculated
as follows: (Pit + Dit − Pit−1 /Pit−1 ), where Pit is the price of security i at the end of period t, Dit is the dividend paid for security
i in period t and Dit is the price of security i at the end of period t − 1; and ei,t is the error term.
The third value relevance test examines the association between IFRS-based book value and net profit figures and stock
returns. The study focuses on normal adopters using financial measures reported in the official adoption period. The OLS
regression model used is as follows (see Hung & Subramanyam, 2007; Iatridis, 2008b):

ARi,t = a0 + a1 BVPSi,t + a2 BVCHAi,t + a3 NPPSi,t + a4 NPCHAi,t + ei,t (8)

where ARi,t is the annual stock return at year-end; BVPSi,t is total book value of equity under IFRS deflated by number of
shares outstanding; BVCHAi,t is a variable indicating the change in firm book value following the transition from the Greek
GAAP to IFRS. BVCHAi,t is calculated as follows: [total book value of equity under IFRS (using 2005 financial measures) − total
book value of equity under the Greek GAAP (using 2004 financial measures)] divided by total book value of equity under
the Greek GAAP (using 2004 financial measures); NPPSi,t is net profit under IFRS deflated by number of shares outstanding;
NPCHAi,t is a variable indicating the change in firm net profits following the transition from the Greek GAAP to IFRS. NPCHAi,t
is calculated as follows: [net profit under IFRS (using 2005 financial measures) − net profit under the Greek GAAP (using
2004 financial measures)] divided by net profit under the Greek GAAP (using 2004 financial measures); and ei,t is the error
term.

4. Data and empirical methods

The sample consists of 254 firms that are listed on the Athens Stock Exchange. The study excluded banks, insurance,
pension and brokerage firms since their accounting measures are not always comparable with those of industrial firms.
 G. Iatridis, S. Rouvolis / Journal of International Accounting, Auditing and Taxation 19 (2010) 55–65 59

Table 1
Descriptive statistics.

Panel A Panel B Panel C

Pre-official adoption Official adoption Pair-wise t-tests for Pair-wise F-test for
period, Greek GAAP: period, IFRS: 2005 equality of means, equality of variances,
2004 Greek GAAP vs. IFRS Greek GAAP vs. IFRS

Mean Std deviation Mean Std deviation 2004 vs. 2005 2004 vs. 2005

Test variables
NP/OCF −0.4544 12.7292 −0.6618 13.43
ACCR 2.004 15.332 2.944 22.574
NPP 899 4.407 345 6.502
BVCHA 0.0432 0.2767 −0.1719 2.4367
BVPS 1.5032 5.4518 1.1978 3.276
NPCHA 0.2416 3.6756 −1.0141 6.5695 ***
*
NPPS 0.4394 2.0512 0.1643 0.8386
PRICE 3.0944 4.9936 3.45 5.1033
LL 0.0364 0.1878 0.0287 0.1673
***
SP 0.2513 0.4348 0.1 0.3008

Dividend
*
DIVSH 0.0742 0.212 0.1042 0.2879
***
DIVYI 16.874 20.0692 21.1119 28.6238
***
DIVCOV 4.4241 5.3097 1.6555 4.7223
Growth
***
MVBV 6.0609 8.503 1.4251 8.0718

Profitability
PLOWB −0.4679 9.941 2.2307 16.045 * ***

NPM −0.3714 6.8918 −0.1049 2.0176

OPM −0.3144 6.8664 −0.0494 2.0723
EPS 0.2857 1.2526 0.1637 0.8369
ROCE 0.1159 0.4156 −0.1028 3.1125 *

Liquidity
OCF 4.947 18.448 4.134 17.974
*
CUR 2.886 7.7602 2.0598 2.5577
QUI 1.9846 5.826 1.5888 2.2348
CFM 0.0296 3.1262 −0.4079 4.6567 **
**
WCR 2.2721 13.3273 2.3313 14.1885

Leverage
* ***
DEBT 2.843 3.5658 3.0986 5.4077
TLSFU 0.6302 2.4104 1.325 1.8246
*** **
CGEAR 0.4537 0.3245 0.7138 1.0972
*
INTCOV 12.2979 49.1163 10.7945 41.8915
*** ***
DEBTE 0.2278 0.4252 1.2402 1.8934
** ***
DSFU 0.2582 0.3534 0.4687 1.0747
*
Statistically significant factor at 10%.
**
Statistically significant factor at 5%.
***
Statistically significant factor at 1%.

Accounting and financial data were collected from DataStream. Information about firms’ accounting choices and policies
was collected from the Financial Times Annual Report Service. The empirical analysis concentrates on the official adoption
period of IFRS, 2005, as well as on the pre- and post-official adoption periods, 2004 and 2006, respectively. Appendix A
presents the industrial sector structure of the sample firms. Appendix B shows the explanatory variables that are employed
in the empirical analysis.
The research hypotheses are tested using the binary logistic regression analysis and the OLS regression analysis. The
logistic regression is useful in analysing categorical data, where the dependent variable is dichotomous and takes only two
values, 0 and 1. The parameters of the logistic regression are estimated based on the maximum likelihood method, while
the hypothesis testing is based on the Wald statistic. The study accounts for heteroscedasticity, autocorrelation, departure
from normality and multicollinearity, where appropriate.

5. Results

5.1. Descriptive statistics

The descriptive statistics in Table 1 present the comparison between financial numbers of normal adopters reported under
Greek GAAP and IFRS. Panel B shows that under IFRS, firms exhibit lower profitability figures (NPCHA and NPPS), while they
60 G. Iatridis, S. Rouvolis / Journal of International Accounting, Auditing and Taxation 19 (2010) 55–65

Table 2
Financial statement effects of IFRS implementation.

Panel A IFRS vs. Greek GAAP, 2005 vs. 2004-IFRS adjusted Panel B IFRS regime, 2005 vs. 2006

Variables Coefficients Variables Coefficients

DSFU 0.0160** (0.008) MVBV 2.9819** (1.39)

QUI −2.6270* (1.506) CGEAR 1.6320** (0.689)
NPM −0.3800* (0.202) TLSFU 1.0880*** (0.24)
MVBV 0.093*** (0.037) QUI −1.8109*** (0.678)
NAVSH 0.2780* (0.162) EPS 0.19* (0.133)
Constant −1.722 (1.958) Constant −7.096 (1.294)

Model 2 16.274** 153.855***

% correctly classified 88.135*** 54.752***
Sample size N0 = 254, N1 = 254 N0 = 254, N1 = 254

All the explanatory variables were entered/removed from the logistic regression using a step-wise procedure with a p-value of 0.05 to enter and a p-value
of 0.10 to remove. The Wald statistic was used to test the null hypothesis that each coefficient is zero.
*
Statistical significance at 10% level (two-tailed).
**
Statistical significance at 5% level (two-tailed).
***
Statistical significance at the 1% level (two-tailed).

retain more (PLOWB) for reinvestment and other purposes, e.g. IFRS transition. The new financial reporting regime may
influence firms’ profitability due to the fair value orientation, which is likely to introduce volatility in reported figures. This
effect is evident in Panel C, which shows that the volatility of profitability measures (PLOWB and ROCE) tends to rise in
2005. Panel B also shows that under IFRS, firms display small profits (SP) less frequently, possibly indicating less earnings
management. In 2005, firms also report higher leverage measures (DEBT, CGEAR, DEBTE and DSFU). The higher leverage led to
lower liquidity (CUR) and dividend cover (DIVCOV). Firms’ profitability may be lower in 2005 because of the higher leverage
and the resulting higher interest expenses that are reported for that year. Panel C indicates that under IFRS, firms display
more volatile dividend (DIVSH and DIVYI), leverage (DEBT, CGEAR, DEBTE and DSFU) and liquidity (CFM and WCR) measures,
while they exhibit lower volatility in growth (MVBV). Despite the lower profitability and the higher volatility in financial
measures that are generally reported under IFRS, the interest coverage ratio (INTCOV) displays lower volatility in 2005.

5.2. IFRS transition and financial statement effects

Table 2 compares the 2005 IFRS-based financial numbers with the 2004 IFRS-adjusted comparative financial numbers and
investigates the impact of IFRS implementation on firm financial performance. The findings show that the 2005 IFRS-based
numbers are significantly different than the 2004 Greek GAAP-IFRS-adjusted numbers. Hence, H1 holds. Panel A shows
that under IFRS, firms display higher leverage (DSFU). The higher financial reporting quality of IFRS would enhance the
credibility of reported financial numbers and, consequently, reinforce the creditability of firms, thereby leading to higher
leverage. The higher leverage and the resulting financial obligations as well as the IFRS transition and adjustment costs are
likely to negatively affect firm profitability (NPM) and liquidity (QUI), which were generally lower in 2005. The fair value
orientation of IFRS also led to higher net asset value per share (NAVSH) and market to book value (MVBV).
Panel B compares the IFRS-based financial numbers reported in 2006 with those reported in 2005, and presents firms’ IFRS
adjustment process over time. The results show that firms’ financial numbers improved in 2006. In 2006, firms continue to
display higher leverage (CGEAR and TLSFU) and lower liquidity (QUI). However, the negative coefficient of liquidity obtained
for 2006 appears to be smaller compared to 2005. Panel B also shows that, in 2006, firms exhibit higher profitability (EPS)
and growth (MVBV) measures. This result would indicate that in 2006, firms have overcome some of the difficulties and
costs of IFRS transition that they encountered in 2005 and started to reap some benefits of IFRS in terms of comparability,
disclosure and financial reporting quality.

5.3. Voluntary IFRS disclosure in the pre-official adoption period

Table 3 shows that firms that provided voluntary IFRS disclosures in the pre-official adoption period displayed higher
profitability (EPS and NPM) and size (NAVSH). Voluntary IFRS disclosers also exhibited higher leverage (DEBT) and equity
financing needs (CS). It appears that in their effort to attract capital in stock and money markets, firms may have provided
voluntary IFRS disclosures in order to give lenders and investors assurance about the credibility and quality of the reported
financial numbers as well as evidence of superior and high quality managerial ability. Firms may also have provided volun-
tary IFRS disclosures because they were large and visible in the stock market, and wanted to influence investors’ perceptions
about their financial performance and prospects. Alternatively, it may be that firms were profitable and exhibited an over-
all favourable financial profile, so they were inclined to provide voluntary accounting disclosures, including IFRS-related
accounting information. The findings indicate, therefore, that the voluntary IFRS disclosure decision is related to the need
to raise funds. The results also indicate that voluntary IFRS disclosers are significantly different than non-voluntary IFRS
disclosers.
 G. Iatridis, S. Rouvolis / Journal of International Accounting, Auditing and Taxation 19 (2010) 55–65 61

Table 3
Voluntary IFRS disclosure.

Variables Coefficients

Voluntary vs. non-voluntary disclosers

EPS 1.0334** (0.447)
NPM 6.4739* (3.494)
NAVSH 0.2222** (0.103)
DEBT 0.3354** (0.134)
CS 3.9966* (2.392)
Constant −7.032 (1.567)

Model 2 25.736***
% correctly classified 97.058***
Sample size N0 = 206, N1 = 48

All the explanatory variables were entered/removed from the logistic regression using a step-wise procedure with a p-value of 0.05 to enter and a p-value
of 0.10 to remove. The Wald statistic was used to test the null hypothesis that each coefficient is zero.
*
Statistical significance at 10% level (two-tailed).
**
Statistical significance at the 5% level (two-tailed).
***
Statistical significance at the 1% level (two-tailed).

5.4. IFRS and earnings management

The findings presented in Table 4 indicate that, in general, the implementation of IFRS has reduced the level of earnings
management as compared to what occurred under Greek GAAP. Therefore, H3 holds. The first earnings management test
in Panel A shows that under IFRS, firms exhibit higher volatility in the change in net profit (NP) and in the change in net
profit to the change in operating cash flows (NP/CF). This result suggests that the reported profitability figures are less
smooth under IFRS than under Greek GAAP.
The second earnings management test in Panel B shows that the correlation between accruals and cash flows in 2004
is negative, suggesting that under Greek GAAP there was greater earnings management. Panel B indicates, however, that
earnings management still occurred in 2005 under IFRS, where the correlation coefficient is also negative and a bit larger
(−0.527 in 2005 as opposed to −0.517 in 2004). This result indicates that in the first year of IFRS implementation, firms may

Table 4
Earnings management: Greek GAAP vs. IFRS.

Greek GAAP: 2004 IFRS: 2005 F-Test

Std deviation Std deviation

Panel A earnings volatility

**
Volatility of NP 3.6717 6.3894
**
Volatility of NP/CF 12.7292 13.43

Greek GAAP: 2004 IFRS: 2005 IFRS: 2006 Significance

Correlation coefficient Correlation coefficient Correlation coefficient

Panel B correlation between accruals and cash flows

Correlation of ACCR and OCF −0.517 −0.527 −0.344 **

Greek GAAP vs. IFRS, 2004 vs. 2005 IFRS regime, 2005 vs. 2006

Variables Coefficients Variables Coefficients

Panel C OLS regression of accruals on firm financial measures

FRSOCF −1.05** (0.049) FRSOCF −0.976** (0.044)
FRSLNMV −0.003** (0.001) FRSLNMV −0.001* (0.001)
FRSOPM 0.414** (0.039) FRSOPM 0.126** (0.03)
FRSTLSFU −0.214** (0.034) Constant 0.009 (0.017)
Constant 0.026 (0.018)

R2 adj. 0.886 0.880

Sample size N0 = 254, N1 = 254 N0 = 254, N1 = 254

Greek GAAP vs. IFRS: 2004 vs. 2005

Variables Coefficients

Panel D Logistic regression extract: small profits and large losses

SP −1.022** (0.345)
LL 2.529* (1.488)
*
Statistical significance at 10% level (two-tailed).
**
Statistical significance at 10% level (two-tailed).
62 G. Iatridis, S. Rouvolis / Journal of International Accounting, Auditing and Taxation 19 (2010) 55–65

Table 5
Value relevance: Greek GAAP vs. IFRS.

Greek GAAP: 2004 IFRS: 2005 IFRS: 2006

Variables Coefficients Variables Coefficients Variables Coefficients

Panel A OLS regression of price on book value per share and net profit per share
NPPS 3.053** (0.173) NPPS 3.064** (0.254) NPPS 3.231** (0.682)
BVPS 0.328** (0.068) BVPS 0.636** (0.183) BVPS 1.426** (0.124)
Constant 1.957 (0.232) Constant 2.064 (0.264) Constant 4.072 (0.560)

R2 adj. 0.5669 0.635 0.811

Sample size N = 254 N = 254 N = 254

Greek GAAP: 2004 IFRS: 2005 IFRS: 2006

Variables Coefficients Variables Coefficients Variables Coefficients

Panel B OLS regression of net profit deflated by price on stock returns

AR 2995.419** (693.553) AR 3221.090** (1081.532) AR 3881.493* (2218.499)
Constant 1381.831 (324.704) Constant 1241.2630 (551.765) Constant 39.6690 (8.444)

R2 adj. 0.073 0.0873 0.0889

Sample size N = 254 N = 254 N = 254

IFRS: 2005 IFRS: 2006

Variables Coefficients Variables Coefficients

Panel C OLS regression of stock returns on book value and net profit change
BVPS 0.047 (0.862) BVPS 0.018 (0.013)
BVCHA 0.305** (0.030) BVCHA 0.25* (0.136)
NPPS 0.032 (0.048) NPPS 0.007 (0.005)
NPCHA 0.001 (0.006) NPCHA 1.592** (0.554)
Constant 0.502 (0.053) Constant 0.016 (0.098)

R2 adj. 0.298 0.225

Sample size N = 254 N = 254
*
Statistical significance at 10% level (two-tailed).
**
Statistical significance at the 1% level (two-tailed).

have used earnings management techniques to improve their financial numbers and/or smooth potential adverse adoption
consequences. In 2006, firms are in the second year of IFRS implementation and are more familiar with the international
accounting requirements. Panel B shows that in 2006, the correlation between accruals and cash flows is still negative, but
the correlation coefficient is much smaller at −0.344. It is noteworthy that in all the three periods, the correlation coefficient
is negative, but very close to zero.
The second earnings management test in Panel C is the OLS regression of accruals on cash flows, profitability, leverage
and size. The findings show that the association between accruals and cash flows (FRSOCF) is significantly negative, implying
that in 2005, firms with low cash flows tended to use accrual-increasing accounting policies or earnings management. This
association remains negative in 2006 but appears to be smaller and closer to zero, as expressed by the respective regression
coefficient. The results are similar to those reported above in Panel B. The association between accruals and size (FRSLNMV)
is negative for both 2005 and 2006, suggesting that large firms were not inclined to adopt accrual-increasing accounting
policies. Likewise, the association between accruals and leverage (FRSTLSFU) is negative, indicating that, under IFRS, firms
with high leverage tend not to increase their accruals. The association between accruals and profitability (FRSOPM) is positive
for both years, implying that firms with low profitability would tend not to adopt accrual-increasing accounting policies.
The third earnings management test in Panel D investigates whether firms manage their accounting numbers to report
small profits (SP) rather than losses, and/or to delay the recognition of large losses (LL) in the income statement. The findings
indicate that under IFRS, SP is significantly negative, implying that firms tend to report small profits less frequently. In
addition, under IFRS, firms exhibit a significantly positive coefficient for LL, indicating that they do recognise large losses
when they occur.

5.5. Value relevance and IFRS

Table 5 shows that the IFRS-based accounting numbers exhibit higher value relevance than these determined under
Greek GAAP, suggesting that H4 holds. The first value relevance test presented in Panel A shows that the coefficients of net
profit per share (NPPS) and book value of equity per share (BVPS) are significantly positive and larger for the official period of
adoption. IFRS-based financial numbers also have higher R2 , indicating that they are more value relevant than those reported
under Greek GAAP. Similar results for the second value relevance test are shown in Panel B, where the annual stock returns
(AR) have a significantly positive and larger coefficient as well as higher R2 under IFRS. The figures exhibit even higher
 G. Iatridis, S. Rouvolis / Journal of International Accounting, Auditing and Taxation 19 (2010) 55–65 63

values in 2006 compared to 2005 and 2004. The results of the third value relevance test, presented in Panel C, show that
the change in firm book value (BVCHA) following the transition to IFRS is significantly positive. This result can be explained
by the fair value orientation of IFRS. The change in net profits (NPCHA), however, appears to be positive but not statistically
significant. In the second year of IFRS implementation, 2006, both the change in firm book value and the change in net profits
display a statistically significant positive coefficient. The findings show that throughout the period under investigation, the
IFRS-based accounting measures provide evidence of value relevancy, which becomes more apparent in the second year of
IFRS implementation.

6. Conclusions

This study investigates the effects of the change from Greek GAAP to IFRS on the financial results of firms listed on the
Athens Stock Exchange. The findings show that the IFRS implementation effects in the official adoption period, 2005, were
unfavourable in terms of profitability and liquidity. In 2006, firms reported better financial performance measures in terms
of profitability and future growth prospects, perhaps because they became more familiar with and adjusted to IFRS.
The study shows that a number of firms provided voluntary IFRS disclosures before the official adoption period. The
factors associated with voluntarily providing IFRS-based accounting information include large size and strong debt and
equity financing needs. In their search for capital, voluntary IFRS disclosers may have believed they were providing lenders
and investors evidence of credibility and quality in their reported financial numbers.
The study also finds that in the official adoption period, there is some evidence of earnings management. It is possible that
in light of significant IFRS transition costs, firms may manage their accounting numbers in order to mitigate potential adverse
effects of IFRS adoption. In the subsequent period, however, the level of earnings management is significantly reduced. Finally,
the implementation of IFRS provides more value relevant accounting measures in the second year of adoption compared to
the official adoption year. In the second year of adoption, the nature and requirements of IFRS would be clearer, the process
of implementing IFRS would be more familiar to users, while the impact of IFRS on firm accounting numbers would be
displayed in a more evident and visible manner.
This study examines how firms that operate in a non-common-law country, Greece, which is stakeholder-based, respond
to IFRS adoption as compared to shareholder-based systems. The literature reports that shareholder-based systems tend
to exhibit similarities with IFRS and higher value relevance than stakeholder-based systems (Ali & Hwang, 2000; Ball et
al., 2000). Hence, firms that operate in shareholder-based systems are more familiar with IFRS requirements and would
subsequently experience less transition costs. Future research should compare the Greek IFRS experience with common-law
countries and/or other non-common-law countries.
The study is useful for accounting standard setters, especially when they prepare or review a change in accounting regu-
lation. The findings would shed some light on the effects of IFRS adoption on Greek firms and enable accounting regulators to
set accounting rules that ease the transition to IFRS and reduce information asymmetry and earnings management. The study
would also benefit investors inside Greece when they assess the impact of IFRS on Greek accounts and review their invest-
ment strategy, as well as investors outside Greece when they compare the Greek experience with that of other countries or
when they consider entering into capital markets that are to adopt IFRS.
The main limitation of the study relates to the consideration that the behaviour and choices of managers may not always
be observable. For example, it may be difficult to determine whether firms influence their financial results for opportunistic
purposes or to smooth their transition to IFRS. Thus, the measures that are employed in the analysis should only be considered
as proxies for the attributes that are examined in the study. The effects of IFRS adoption would vary from country to country,
depending on the accounting system in use, the corporate culture and practice, and the legal and economic environment.

Acknowledgements

The authors would like to thank the Editor of the Journal of International Accounting, Auditing and Taxation, Professor
Kathleen Sinning, and two anonymous referees for their consideration, effort and valuable comments.

Appendix A.

Sample industrial sectors.

Industry Number of Firms

Chemicals 11
Construction and building materials 39
Industrial goods and services 25
Food and beverage 34
Retail 16
Health care 7
Basic resources 17
Travel and leisure 18
Media and entertainment 15
Oil and gas 4
64 G. Iatridis, S. Rouvolis / Journal of International Accounting, Auditing and Taxation 19 (2010) 55–65

Appendix A ( Continued )
Industry Number of Firms

Personal care and household products 41

Technology 22
Telecommunications 2
Utilities 3
Total 254

Appendix B.

Accounting measures used as explanatory variables.

Size
NAVSH Net asset value per share
RESSFU Reserves to shareholders’ funds

Dividend
DIVCOV Dividend cover
DIVSH Dividend per share
DIVYI Dividend yield

Growth
MVBV Market value to book value

Profitability
EPS Earnings per share
NPM Net profit margin
PLOWB Plowback (retention) ratio
ROCE Return on capital employed

Liquidity
CFM Cash flow margin
CUR Current ratio
OCF Operating cash flows scaled by total assets
QUI Quick ratio
WCR Working capital ratio

Leverage
DEBTE Debt to equity
DSFU Debt to shareholders’ funds
INTCOV Interest cover
CGEAR Capital gearing
TLSFU Total liabilities to shareholders’ funds

Other Variables
ACCR Accruals scaled by total assets
AR Annual stock return
BVCHA Change in firm book value following the transition from the Greek GAAP to IFRSs
BVPS Book value per share
CS Indicates the equity financing needs of firms
DEBT Indicates the debt financing needs of firms
LL Large losses
NPCHA Change in firm net profits following the transition from the Greek GAAP to IFRSs
NPP Net profit to share price
NPPS Net profit per share
PRICE Share price
SP Small profits
CF Change in operating cash flows scaled by total assets
NP Change in net profit scaled by total assets

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