Received:
2021-11-15 | Accepted:
2022-01-25 | Published:
2022-03-30
Title
The impact of IFRS adoption on companies' financial ratios: evidence from Lithuania
Abstract
According to previous research, a company’s choice to adopt International Financial Reporting Standards (IFRS) may change accounting quality, comparability of financial statements, transparency, cost of capital, foreign investments, financial ratios and many other aspects. The main objective of this study was to evaluate the impact of the adoption of IFRS on financial ratios of Lithuanian state-owned companies. The study investigated financial ratios (profitability, liquidity and leverage) from the financial statements of 15 state-owned companies which adopted IFRS in the last decade. Data were manually collected from the companies’ financial statements on websites, and statistical analysis was performed for the empirical study. The research results showed that IFRS adoption is related to decreased profitability (ROA, ROE, gross margin ratio, net profit margin) ratios, and liquidity ratios (current ratio and quick ratio), but none of these changes was significant. Leverage ratios (financial dependency ratio, debt ratio) varied differently: the financial leverage ratio had a statistically significant decrease, while the debt ratio had a significant increase. Comparing the obtained results with the results of other studies, it can be seen that similar results are obtained only with leverage ratios.
Keywords
IFRS adoption, financial ratios, impact, Lithuania
JEL classifications
M41
URI
http://jssidoi.org/jesi/article/945
DOI
Pages
212-226
Funding
This is an open access issue and all published articles are licensed under a
Creative Commons Attribution 4.0 International License
References
Abdul–Baki, Z., Uthman, A.B, & Sannia, M. (2014). Financial Ratios as Performance Measure: A Comparison of IFRS and Nigerian GAAP. Accounting and Management Information Systems, 13(1), 82–97. http://online-cig.ase.ro/jcig/art/13_1_4.pdf
Search via ReFindit
Abdullahi, A., Abubakar, M. Y., & Ahmad, S.S. (2017). International Financial Reporting Standards (IFRS) Adoption and Oil & Gas Companies Performance in Nigeria. International Journal of Accounting and Economics Studies, 5(2), 146–149. https://doi.org/10.14419/ijaes.v5i2.8209
Search via ReFindit
Ali, A., Akbar, S., & Ormrod, P. (2016). Impact of International Financial Reporting Standards on the Profit and Equity of AIM Listed Companies in the UK. Accounting Forum, 40(1), 45–62. https://doi.org/10.1016/j.accfor.2015.12.001
Search via ReFindit
Ball, R. (2016). IFRS–10 Years Later. Accounting and Business Research, 46(5), 545–571. https://doi.org/10.1080/00014788.2016.1182710
Search via ReFindit
Blanchette, M., Racicot, F. É., & Girard, J. Y. (2011). The Effects of IFRS on Financial Ratios: Early Evidence in Canada. Certified General Accountants Association of Canada. Available at S_on_Financial_Ratios_Early_Evidence_in_Canada/links/5453962b0cf2cf51647c1b73/The-Effects-of-IFRS-on-Financial-Ratios-Early-Evidence-in-Canada.pdf https://www.researchgate.net/profile/Francois-Eric-Racicot/publication/254398672_The_Effects_of_IFR
Search via ReFindit
Callao, S., Jarne, J. I., & Lainez, J. A. (2007) Adoption of IFRS in Spain: Effect on the Comparability and Relevance of Financial Reporting. Journal of International Accounting, Auditing and Taxation, 16, 148–178. https://doi.org/10.1016/j.intaccaudtax.2007.06.002
Search via ReFindit
Chan, A.L.C., Hsu, A.W.H., & Lee, E. (2015). Mandatory Adoption of IFRS and Timely Loss Recognition Across Europe: The Effect of Corporate Finance Incentives. International Review of Financial Analysis, 38, 70–82. https://doi.org/10.1016/j.irfa.2015.02.002
Search via ReFindit
Dimitrios, B., Nikolaos, E., Konstantinos, P., & Dimitrios, V. (2013). The Impact of IFRS on Ratios of Listed and New Listed Companies of Athens Exchange. International Journal of Business and Social Research, 3(5), 139–157. Available at http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.682.1951&rep=rep1&type=pdf
Search via ReFindit
Gastón, S. C., García, C. F., Jarne, J. I. J., & Gadea, J. A. L. (2010). IFRS Adoption in Spain and the United Kingdom: Effects on Accounting Numbers and Relevance. Advances in Accounting, 26(2), 304–313. https://doi.org/10.1016/j.adiac.2010.08.003
Search via ReFindit
Gray, S. J., Linthicum, C. L., & Street, D. L. (2009). Have European and US GAAP Measures of Income and Equity Converged under IFRS? Evidence from European Companies Listed in the US. Accounting and Business Research, 39(5), 431–447. https://doi.org/10.1080/00014788.2009.9663377
Search via ReFindit
Ibiamke, N. A., & Ateboh–Briggs, P. B. (2014). Financial Ratios Effect of International Financial Reporting Standards (IFRS) Adoption in Nigeria. Journal of Business and Management Invention, 3(3), 50–59.
Search via ReFindit
Istrate, C. (2013). Impact of IFRS on Accounting Data–Gray Index of Conservatism Applied to Some European Listed Companies. Analele Ştiinţifice ale Universităţii» Alexandru Ioan Cuza «din Iaşi. Ştiinţe economice, 60(2), 259–277. Available at aaic/article/viewFile/100/pdf_45. http://saaic.feaa.uaic.ro/index.php/s
Search via ReFindit
Jindřichovská, I., & Kubíčková, D. (2014). Impact of International Financial Reporting Standards (IFRS) Adoption on Key Financial Ratios: The Case of the Czech Republic. Journal of Modern Accounting and Auditing, 10(2), 133–146.
Search via ReFindit
Kamarajugadda, A. V., & Sireesha, P. (2015). Impact of IFRS Adoption on Financial Statements of Select Indian Companies. Osmania Journal of International Business Studies, 10(1), 21–33. Available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2585713
Search via ReFindit
Lantto, A. M., & Sahlstrӧm, P. (2009). Impact of International Financial Reporting Standard Adoption on Key Financial Ratios. Accounting and Finance, 49(2), 341–361. https://doi.org/10.1111/j.1467-629X.2008.00283.x
Search via ReFindit
Lueg, R.; Punda, P., & Burkert, M. (2014). Does Transition to IFRS Substantially Affect Key Financial Ratios in Shareholder–oriented Common Law Regimes? Evidence from the UK. Advances in Accounting, Incorporating Advances in International Accounting, 30(1), 241–250. https://doi.org/10.1016/j.adiac.2014.03.002
Search via ReFindit
Moura, A. A. F., & Coelho, A.C. (2016). Impact of Changes in Accounting Standards in Debt Ratios of Firms: Evidence in Brazil. Brazilian Accounting Review, 13(5), 27–50. https://doi.org/10.15728/bbr.2016.13.5.2
Search via ReFindit
Munteanu, A., Brad, L., Ciobanu, R., & Dobre, E. (2014). IFRS Adoption in Romania: the Effects Upon Financial Information and Its Relevance. Procedia Economics and Finance, 15, 288–293. 00504-8 https://doi.org/10.1016/S2212-5671(14)
Search via ReFindit
Neag, R. (2014). The Effects of IFRS on Net Income and Equity: Evidence from Romanian Listed Companies. Procedia Economics and Finance, 15, 1787–1790. 00860-0 https://doi.org/10.1016/S2212-5671(14)
Search via ReFindit
Opare, S., Houqe, M.N., & Zijl, T.V. (2021). Meta-analysis of the Impact of Adoption of IFRS on Financial Reporting Comparability, Market Liquidity, and Cost of Capital. Abacus, 57(3), 502–556. https://doi.org/10.1111/abac.12237
Search via ReFindit
Paulinus, E. C., Ethelbert, A. A., & Jones, A. S. (2018). International Financial Reporting Standards (IFRS) and Firm Profitability. International Journal of Multidisciplinary Research and Development, 5(10), 19–27.
Search via ReFindit
Razali, N. M., & Wah, Y. B. (2011). Power Comparisons of Shapiro-Wilk, Kolmogorov-Smirnov, Lilliefors and Anderson-Darling Tests. Journal of Statistical Modeling and Analytics, 2(1), 21–33. Available at ts_comparison.pdf http://www.de.ufpb.br/~ulisses/disciplinas/normality_tes
Search via ReFindit
Regulation (EC) No 1606/2002 of the European Parliament and the Council of 19 July 2002 on the application of international accounting standards. EU Official Journal. Available at EUR-Lex - 32002R1606 - EN - EUR-Lex (europa.eu)
Search via ReFindit
Resolution of the Government of the Republic of Lithuania “On the Approval of the Description of the Guidelines for Ensuring the Transparency of the Activities of State–Owned Enterprises and the Designation of the Coordinating Authority”. July 14 2010. No 1052. News of the State, No. 88–4637. Available at https://e-seimas.lrs.lt/portal/legalAct/lt/TAD/TAIS.378545?jfwid=-je7i1sz4g
Search via ReFindit
Saculinggan, M., & Balase, E. A. (2013). Empirical Power Comparison of Goodness of Fit Tests for Normality in the Presence of Outliers. Journal of Physics: Conference Series, 435(1). https://doi.org/10.1088/1742-6596/435/1/012041
Search via ReFindit
Shukla, S. (2015). An Empirical Study of the Impact of Adoption of IFRS on the Financial Activities of Companies in India. 2 nd International Conference on Multidisciplinary Research & Practice. International Journal of Research and Scientific Innovation, III(I), 323–329.
Search via ReFindit
Sovbetov, Y. (2015). How IFRS Affects Value Relevance and Key Financial Indicators? Evidence from the UK. International Review of Accounting, Banking and Finance, 7(1), 73–96. https://dx.doi.org/10.2139/ssrn.2394507
Search via ReFindit
Stent, W., Bradbury, M., & Hooks, J. (2010). IFRS in New Zealand: effects on financial statements and ratios. Pacific Accounting Review, 22(2), 92–107. https://doi.org/10.1108/01140581011074494
Search via ReFindit
The Republic of Lithuania. The Law on Accounting. November 6, 2001. No IX-574. Valstybės žinios, No 99–3515. Available at IX-574 Lietuvos Respublikos buhalterinės apskaitos įstatymas (lrs.lt)
Search via ReFindit
Use of IFRS Standards around the World. 2018. IFRS Foundation. Use of IFRS around the world overview sept 2018
Search via ReFindit
Utku, M., & Kaya, Y. (2019). IFRS Adoption in Europe: The Case of Industrial Sectors. In Studies on Interdisciplinary Economics and Business (edited by Özçelik, Ö.). Volume II. Peter Lang GmbH. 287–301.
Search via ReFindit
Vellam, I. (2012). The Adoption of IFRS in Poland: An Institutional Approach. The University of Greenwich. Doctor Dissertation.
Search via ReFindit
RSS 1.0
