Earnings quality in private firms: The role of IFRS and firm-level reporting incentives

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Private firms, i.e. firms whose shares are not publicly listed, constitute more than 90% of all firms in most economies in the world. Existing empirical literature on the effects of IFRS adoption so far has almost exclusively focused on publicly listed firms. We aim to close this gap by providing an empirical analysis of the impact of IFRS adoption on the earnings quality of private firms. Further, we will investigate the role of firm-level reporting incentives in determining earnings quality upon the adoption of IFRS. To pursue these research questions we focus on the German setting where interestingly and yet largely unobserved a considerable number of private firms has recently adopted IFRS for consolidated financial statements. In our empirical analyses we will use well-accepted measures of earnings quality (e.g. for earnings management, timely loss recognition) and employ regression techniques in different designs like a within-firm analysis and a control group analysis. We expect our results to provide useful insights into the largely unknown reporting practices of private firms.