臺大管理論叢 NTU Management Review VOL.30 NO.2

The Effects of Relaxing the Reconciliation Requirement in Foreign Private Issuers’ SEC Filings on Earnings Management Strategies: IFRS Adopters versus U.S. GAAPAdopters 112 7.7 Voluntary IFRS Firms prior to the Elimination To examine whether other voluntary adopters also exhibit the trade-off decisions similar to our test samples’, we conduct similar tests (i.e., the simultaneous equations (6) and (7)) using two control samples of firms that did not domicile in countries that adopt U.S. GAAP/IFRS but elected to adopt either of the standards voluntarily prior to the SEC’s decision to waive the reconciliation requirement and have not changed their filing choice since then. 27 Table 6 indicates that the coefficients on DA it , RM_SUM it , RM_PROD it , and RM_DISX it are all negative and significant at p = 1% for the U.S. GAAP control sample. On the other hand, the coefficients on all of the earnings management variables, except DA it in the RM_DISX it equation, are negative and significant at better than p = 1% for the IFRS control sample. The Hausman (1978) test for endogeneity is also consistent with these results: we reject the null of no endogeneity at p = 1% significance level across all the models using either of the control samples except for the RM_DISX it equation using voluntary IFRS observations. Taken together, the combined evidence suggests that voluntary U.S. GAAP adopters determine the levels of discretionary accruals and real activities manipulation simultaneously. The results also show evidence of simultaneity and substitution between abnormal accruals and inventory overproduction for the IFRS control sample. However, in contrast to the results in our primary analysis, the findings from the control sample tests reveal that voluntary IFRS adopters without changes in their filing status determine the abnormal level of discretionary expenditures independently of their decisions about managing discretionary accruals, but that the amount of discretionary expenditures has a negative effect on the magnitude of accrual management. Table 6 shows that the coefficients on BBATH it and the proxies for “income smoothing” reporting (i.e., SM_SUM it , SM_PROD it , and SM_PROD it ) are negative and significant at better than p = 5% for both the U.S. GAAP and IFRS control samples in all the models except those in the RM_DISX it equation using IFRS observations. The coefficients on DEBT it and ST_DEBT it are significantly positive at better than p = 10% for 27 The control sample consists of 796 (116) firm-year observations representing 199 (29) distinct firms that voluntarily adopted U.S. GAAP (IFRS) prior to 2007 and continued to do so during our sample period 2007-2010. The number of U.S. GAAP control sample firms is significantly greater than that of test sample due to the SEC’s waiver of IFRS-to-U.S. GAAP reconciliation for financial statements issued for fiscal years ending after November 15, 2007, and interim periods after the effective date.