Does IFRS adoption reduce firm’s opacity? A meta-analysis

Purpose: There is an ongoing debate on whether firm’s adoption of International Financial and Reporting Standards (IFRS) is enough to reduce earnings management. An inspection of 52 studies from different continents published between 2005 and 2018 throws that 54% conclude that the mere adoption of IFRS does not reduce opacity or even increases it; while 46% conclude that it reduces firm’s opacity. The purpose of this paper is to elucidate whether IFRS adoption reduce firm’s opacity by identifying factors that may affect this relationship. Design/methodology/approach: To compare our results with previous ones we use the meta-analysis methodology from Hunter et.al. (1982). Furthermore, we also use a meta-regression from Stanley et al. (1989) to identify variables that may explain the relationship between IFRS adoption and firm’s opacity. Findings: Contrary to previous studies, our general result from the meta-analysis is a low, negative and non-significant correlation between IFRS adoption and firm’s opacity. Furthermore, our results from the meta-regression indicate that IFRS adoption increases opacity in countries with civil law and with a low index of rule of law. Despite previous results, we found that IFRS adoption in Europe and in other geographical regions increases opacity except for countries with a high rule of law that helps to reduce it. Originality/value: This is the first study that analyses the moderating factors in the relationship between IFRS adoption and firm’s opacity.