Does voluntary adoption of IFRS by private companies enhance their credit scoring? An empirical analysis

International Financial Reporting Standards (IFRS), used by more than 27,000 listed companies in about 100 countries around the world, are considered “investor-oriented” accounting standards. Instead, most national accounting standards in Europe could be defined as “creditor-oriented” standards, primarily focused on the financial information needs of creditors and, to a certain extent, tax authorities. In this sense, national accounting standards can be seen as typical of “weak equity” accounting systems, while IFRS exhibit all the characteristics of "strong equity" accounting systems. Even if EU Regulation No. 1606/2002 allows Member States to extend the use of IFRS beyond the scope of the Regulation itself, in most EU countries the close link between financial reporting and taxation has often represented an obstacle to full IFRS adoption by private companies, or even for the preparation of the individual financial statements of listed companies. Previous studies have investigated the accounting choices of private companies, explaining how they are mostly related to company size, auditor reputation, opportunities for growth, and the presence of a parent company reporting under IFRS. One of the factors often cited in several studies is the correlation between financial leverage and voluntary adoption of IFRS. Our aim is to determine whether the choice of adopting IFRS has an impact on private companies’ credit scoring. We compare a sample of about 1,000 Italian private companies that adopted IFRS voluntarily, representing almost the entirety of voluntary adopters in Italy, with a control sample of non-adopters to correlate their credit scoring, provided by a rating agency, with their choice to adopt IFRS and with other financial and governance variables. We believe that our research investigates the voluntary adoption of IFRS by private companies from a new perspective, allowing us to shed some light on the connections between financial reporting practices in creditor-oriented financial systems and access to credit financing.