The nested and spillover effects of institutional environment on reporting standard convergence: a multilevel approach and an agglomeration economy perspective
Journal of Accounting Literature
ISSN: 0737-4607
Article publication date: 18 May 2023
Issue publication date: 20 October 2023
Abstract
Purpose
The objective of this study is to examine how the heterogeneity of the institutional environments within a single country influences International Financial Reporting Standards (IFRS) convergence and earnings quality based on a meso- and multi-level approach.
Design/methodology/approach
Using hierarchical linear modeling (HLM) to capture the between-group heteroskedasticity and within-cluster interdependence, this study investigates the simultaneous effect by incorporating institutional factors residing at different hierarchical levels and the interaction effects of factors within the same level on IFRS convergence and earnings quality in the largest IFRS adopter, China.
Findings
The results show that after IFRS convergence (i.e. 2007–2015), earnings quality decreases in terms of conservatism. However, the further analysis indicates that the strong institutional environment could mitigate the negative impact of IFRS on conservatism.
Originality/value
Consistent with the emphasis of heterogeneity within a country by Terracciano et al. (Science, 2005, 310 (5745)), this study indicates that the heterogeneity in the institutional environments and the simultaneous effect of the multilevel institutional environments within a single country cannot be ignored. This study also indicates that, equally important, research methodology plays a substantial role in investigating the outcomes of IFRS convergence. Finally, this study, based on an integrated theory, adopts a meso-paradigm linking macro- and micro-level institutions to provide comprehensive insights into IFRS convergence and conservatism.
Keywords
Acknowledgements
The author thank Professor Tom Smith, Professor Martina Linnenluecke, anonymous reviewers, Professor Iftekhar Hasan, Professor Mark Wilson, Professor Millicent Chang, Professor David Yermack, Professor Ann Tarca, Professor Thomas Omer, Professor Martin Bugeja, Professor Jonathan Jona, Mr Zhanzhong Gu, and participants at the doctoral symposium of Accounting and Finance Association of Australia and New Zealand for their insightful and valuable comments and suggestions.
Citation
Cao, J. (2023), "The nested and spillover effects of institutional environment on reporting standard convergence: a multilevel approach and an agglomeration economy perspective", Journal of Accounting Literature, Vol. 45 No. 3, pp. 581-615. https://doi.org/10.1108/JAL-02-2023-0022
Publisher
:Emerald Publishing Limited
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