The macroeconomic determinants of the adoption of IFRS for SMEs

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R E V I S T A

D E

C O N T A B I L I D A D

S P A N I S H

A C C O U N T I N G

R E V I E W

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The

macroeconomic

determinants

of

the

adoption

of

IFRS

for

SMEs

Ana

Bonito,

Cláudio

Pais

∗

AccountingDepartment,InstitutoUniversitáriodeLisboa(ISCTE–IUL),Lisboa,Portugal

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Articlehistory:

Received6June2017 Accepted8March2018 Availableonline8May2018 JELclassiﬁcation:

M41 O57 Keywords: IFRSforSMEs Macroeconomicfactors Accountingharmonization

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Smallandmedium-sizedentities(SMEs)representmorethan95%ofcompaniesworldwideandaccount formorethan65%ofemployment.AsamovetowardsSMEharmonization,in2009theInternational AccountingStandardsBoard(IASB)issuedtheInternationalFinancialReportingStandards(IFRS)for SMEs.DuetothelackofstudiesonadoptionofIFRSforSMEs,weanalyzetherelationshipbetween macroeconomicfactorsandcountries’decisiontoadoptIFRSforSMEs.Basedonasampleof84adopters andnon-adoptersofIFRSforSMEs,bothdevelopedanddevelopingcountries,wefindevidencethat countrieswithoutanationalsetoffinancialaccountingstandardsforSMEs,withexperienceofapplying IFRSandacommonlawlegalsystemaremorelikelytoadoptIFRSforSMEs.Theseresultsmaybedueto lowtransactioncosts,theimportanceofhavingsomeknowledgeofIFRSreportinggivenitscomplexity andbelongingtoIFRSbasedcountriesfacilitatingadoptionofIFRSforSMEs.Additionally,wefindthat EuropeanUnion(EU)membercountriesarelesslikelytoadoptthestandard.Knowledgeof macroeco-nomicfactorsaffectingthedecisiontoadoptIFRSforSMEsisusefulforthevariousentitiesthatdefine internationalaccountingharmonization,suchastheIASB,regulatorsandinternationalaccountingfirms, sincethisinformationcanhelpthemtopromoteworldwideadoptionofthestandard.

Determinantes

macroeconómicos

en

la

adopción

de

las

IFRS

para

las

pymes

CódigosJEL: M41 O57 Palabrasclave:

InternationalFinancialReportingStandards paralaspymes

Factoresmacroeconómicos Armonizacióncontable

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Laspeque ñasymedianasempresas(pymes)representanmásdel95%delasempresasdetodoelmundo ycontabilizanmásdel65%delempleo.Comopasohacialaarmonizacióndelaspymes,en2009el InternationalAccountingStandardsBoard(IASB)emitiólasInternationalFinancialReportingStandards (IFRS)paralaspymes.DebidoalafaltadeestudiossobrelaadopcióndelasIFRSporlaspymes,analizamos larelaciónentrelosfactoresmacroeconómicosyladecisióndelospaísesdeadoptarlasIFRSparalas pymes.Conbaseenunamuestrade84adoptantesynoadoptantesdelasIFRSparalaspymes,tanto paísesdesarrolladoscomoenvíasdedesarrollo,encontramosevidenciadequelospaísessinunconjunto nacionaldenormasdecontabilidadfinancieraparalaspymes,conexperienciaenaplicarlasIFRSyun sistemalegaldederechocomúnsonmáspropensosaadoptarlasIFRSparalaspymes.Estosresultados puedendebersealosbajoscostosdetransacciónylaimportanciadetenerciertoconocimientodelos informesIFRSdadasucomplejidadypertenenciaalospaísesbasadosenlasIFRS,loquefacilitalaadopción delasIFRSporlaspymes.Además,encontramosquelospaísesmiembrosdelaUniónEuropea(UE) tienenmenosprobabilidadesdeadoptarlanorma.Elconocimientodelosfactoresmacroeconómicos queafectanaladecisióndeadoptarlasIFRSparalaspymesesútilparalasdiversasentidadesque definenlaarmonizacióncontableinternacional,comoelIASB,losreguladoresylasempresascontables internacionalesyaqueestainformaciónpuedeayudarlosapromoverlaadopciónmundialdelanorma. ©2018ASEPUC.PublicadoporElsevierEspa ña,S.L.U.Esteesunart´ıculoOpenAccessbajolalicencia CCBY-NC-ND(http://creativecommons.org/licenses/by-nc-nd/4.0/).

∗ Correspondingauthor.

E-mailaddress:[email protected](C.Pais).

Introduction

SincetheInternationalFinancialReportingStandards(IFRS)for smallandmediumentities(SMEs)wasissuedin2009forSMEsthat

https://doi.org/10.1016/j.rcsar.2018.03.001

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donotrequirepublicaccountability,bytheInternational Account-ingStandardsBoard(IASB),85countrieshaverequiredorpermitted itsuseforSMEs’financialreporting.However,severalcountries havenotadoptedorhaverejecteditsadoption(IASB,2009a,2016, 2017).AswellastheeffectsoftheadoptionofIFRSforSMEson thequalityoffinancialreporting,itisimportanttoknowthe insti-tutionalcharacteristicsofcountriesthatadoptthestandard.Since IFRSforSMEsisnotmandatory,thecontributionofcountries’ insti-tutionalcharacteristicstoitsadoptionbecomesanimportantissue. SMEsrepresentmorethan95percentofcompaniesworldwide andaccountformorethan65percentofemployment(IASB,2009a; IFAC,2010).SMEsmakeagreatcontributiontojobcreation, tech-nologicalinnovationandeconomicoutputbothfordevelopedand developingcountries(Chen,2006).Forinstance,inEurope,SMEs accountedfor67%oftotalemploymentin2010andintheperiod 2002–2010SMEscreated85% ofthe newjobsinthe European Union(EU)(EuropeanCommission,2012).Besides,SMEs repre-sent99.8%ofnon-financialcompaniesandgenerate57.4%ofvalue added(EuropeanCommission,2016).InthecaseofAsia-Pacific Eco-nomicCooperation(APEC)countries,SMEsarethemainbusinesses, thelargestemployersandtheircontributiontoeconomicoutputis significant(APEC,2009).

InviewoftheimportanceofSMEsandtheuseofIFRSforSMEs insomanycountries,themainobjectiveofthisstudyistoanalyze whetherthereisarelationshipbetweeninstitutionalfactorsand theadoptionofIFRSforSMEs.Thismayhelpanswerthequestion ofwhyacountryhasadoptedIFRSforSMEs.

BeforetheIASBissuedIFRSforSMEs,countriesadoptedeither theirownnationalfinancialaccountingstandardsorfullIFRSfor SMEs.The IASB believesthat adoptingIFRS for SMEs enhances SMEs’accesstointernationalfinancethroughharmonizedandhigh qualityfinancialinformation(IASB,2009a).IFRSforSMEsisbased onfullIFRSwithmodificationsreflectingtheneedsofthoseusing SMEs’financialstatementsandcost-benefitconsiderations(IASB, 2015).IFRSforSMEsisastand-alonedocumentwith5sections, withasignificantlyreducednumberofdisclosuresofaround300, comparedtothefullIFRSof3000disclosuresandwithreduced guidance(Perera&Chand,2015).However,theIASBdoesnothave anymemberwithaSMEsbackgroundandthemajorcomments aboutthenewstandarddidnotcomefromusers.Thisisanissue sinceitmaynotfulfiltheneedsofusers,andaccesstointernational fundsisaveryremotepossibility,especiallyformicro,smalland medium-sizedenterprises(Perera&Chand,2015).Themain per-ceptionofusersisthatIFRSforSMEsistoosimilartothefullIFRS (Quagli&Paoloni,2012),butfullIFRSareasetofcomplex,onerous andcostlystandardsforSMEs(Perera&Chand,2015).

Theissueofasetofmacroeconomicfactorsinfluencing account-ingstandardsandpracticesinacountryhasalreadybeenstudied (Anghel, 2013; Elliot &Elliot, 2013; Gray & Radebaugh, 2002; Nobes&Parker,2000;Nobes,1998).Severalstudiesanalyzethe macroeconomicfactorsinfluencingtheiradoptionforthe consol-idatedfinancial statementsof listedcompanies(Archambault & Archambault,2009;Clements,Neill,&Stovall,2010;Hope,Jin,& Kang,2006;Lasmin,2011;Ramanna&Sletten,2014;Ritsumeikan, 2011; Shima & Yang, 2012; Zeghal & Mhedhbi, 2006; Zehri & Chouaibi,2013).However,asfarasweknow,onlyKayaandKoch (2015)studyIFRSforSMEsbyanalysingtherelationof macroe-conomicfactors withadoption ata countrylevel. Moststudies onIFRSforSMEsareaboutstakeholders’perceptionofthecosts andbenefitsofadoption(Albuetal.,2013;Kılıç,Uyar,&Ataman, 2014;Litjens&Bissessur,2012;Uyar&Güngörmüs¸,2013).Kaya andKoch(2015)studycountriesthathaveadoptedIFRSforSMEs in2013andconcluded thatcountriesmostlikely toadoptIFRS forSMEsarethosenotcapableofissuingtheirownsetof finan-cialaccountingstandards,those where fullIFRS areappliedfor

non-listedcompaniesand thosewitharelativelylowqualityof governanceinstitutions.

Oneimportantmotivationisthelackofstudiesonadoptionof IFRSforSMEs.ItisimportanttostudyadoptionofIFRSforSMEs forprivatecompaniesthatissueindividualﬁnancialstatements. Anothermotivationistohighlightthefactorsthatcouldinﬂuence theadoptionofIFRSforSMEsatacountrylevelandnotjustata microeconomiclevel.Besides,sinceIFRSforSMEsisnotmandatory accordingtoanysupranationalorganization,thecontributionof countries’institutionalcharacteristicstotheiradoptionbecomes animportantissuetostudy.

Our sample includes 84 countries that have and have not adoptedIFRSforSMEsattheendof2015.Weusealogitregression toexaminewhetherinstitutionalfactorsinfluenceacountry’s deci-siontoadoptIFRSforSMEs.Weobtaininformationontheadoption statusofeachcountryfromtheIASBprofilewebpage(forinstance, ifthecountryhasorhasnotadoptedIFRSfor SMEsandwhich setofaccountingstandardsareinuse).We studythefollowing institutional factors:education,theavailability ofa nationalset offinancialaccountingstandardsforSMEs,familiaritywithIFRS, legalsystem,foreignaid,qualityofthenationalfinancial account-ingstandardsandtherelationshipbetweenaccountingstandards and tax rules. We could add more institutional factors, but as pointedoutbyIsidro,Nanda,and Wysocki(2016),addingmore factorsaddslittleincrementalexplanatorypower.Weexpected thatcountriesaremorelikelytoadoptIFRSforSMEsiftheyhave ahighereducationlevel,havenonationalsetoffinancial account-ingstandardsforSMEs,aremorefamiliarwiththeapplicationof IASBstandards,haveacommonlawlegalsystem,aresubjectto aforeignaidprogramme,havealowerqualityofnational finan-cialaccountingstandardsandhaveaweakrelationshipbetween accounting and taxation. We also perform several robustness tests,forinstance,measuringdifferentlysomeoftheindependent variables.

Themainresultsindicatethatacountryismorelikelytoadopt IFRSforSMEsifithasnospecificsetofnationalfinancial account-ing standards,if thelegal systemis common lawand if it has moreexperienceandfamiliaritywithusingIFRS.However,there is no evidence that theeducation level, foreignaid, quality of thenationalfinancialaccountingstandardsandtherelationship betweenaccountingandtaxationisrelatedwiththedecisionto adoptIFRS forSMEs.BecausetheEuropeanUnion(EU)hasnot adoptedIFRSforSMEs,unlikeadoptionoffullIFRS,westudythe influenceofacountrybeingamemberoftheEU.Wefindthatthose countriesarelesslikelytoadoptIFRSforSMEs,mainlybecauseit wouldbenecessarytomake majorchanges inIFRSforSMEsto complywiththeaccountingdirective(Kaya&Koch,2015).

Thisstudymakesseveralcontributions.Onecontributionisthat weshowthatmacroeconomicfactorscaninﬂuencetheadoptionof IFRSbySMEs.Anothercontributionisthatweextendtheresultsof

KayaandKoch(2015),regardingtheyearofstudyandthevariables used.Moreover,thestudyincludesmanydevelopedand develop-ingcountries,withmanysimilarities,comparedtostudyingfull IFRS,duetothetypeofcompanies(smallones,preparingmainly individualfinancialstatements,withoutcomplextransactionsand organizationalstructuresandnon-listed).Understandingwhether institutionalfactorsareassociatedwiththeadoptionofIFRSfor SMEsisusefulnotonlyforresearchersbutalsoforaccounting stan-dardssetters,governments,financialmarketregulators,investors, preparers,andmostimportantly,fortheIASB,whichcanuseour findingstopromotemoreeffectivelytheadoptionofIFRSforSMEs, orevenchangethestandard.

The remainderof thepaper is organizedas follows.Section twopresentsaliteraturereviewandhypotheses.Thethirdsection presentsthesampleandtheregressionmodel.Thefourthsection

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discussestheresults.Theﬁfthsectionpresentstheconclusionsand thelimitationsofthestudy.

Literaturereviewanddevelopmentofhypotheses

Becauseofthegrowinginternationalizationofeconomictrade and globalization of businesses and financial markets, national financialaccountingstandardscouldnolongersatisfytheneeds ofusers(Barth,2008;Judge,Li,&Pinsker,2010;Kılıçetal.,2014; Zeghal&Mhedhbi,2006).Theimportanceofhavingaharmonized setofaccountingstandardsnotonlyforlistedcompaniesbutalso fornon-listedoneshasgrown,andthereforetheIASBdeveloped, besidesfullIFRS,theIFRSforSMEs.Theprojectbeganin2003and IFRSforSMEswaspublishedon9July2009.IASBthinksthatas IFRSforSMEsharmonizesandenhancesthequalityoffinancial statements,thiswillfacilitateaccesstointernationalfinance(IASB, 2009a).

Francis, Khurana, Martin, and Pereira (2008) find evidence that microeconomic and macroeconomic factors influence the company’s voluntaryadoption. They show that microeconomic factorsaremoreimportantthanmacroeconomic onesin devel-opedcountriesandtheopposite occursindevelopingcountries. Thisconclusioncanreducethestrengthoftheinfluenceof insti-tutionalfactorsonadoptionofIFRSforSMEs(orfullIFRS)when thestudyincludesbothdevelopedanddevelopingcountries,but onlywhenthatoptionisavailable.However,theadoptionofIFRS forSMEscouldbeusedasamechanismtoreduceconflictsof inter-estbetweentaxauthoritiesandcreditorsandSMEsmanagement (Kolsi&Zehri,2013).Coercive isomorphismasa mechanismto supportinstitutional isomorphismcanhelptoexplain adoption ofIFRSforSMEs,bytheformalorinformalpressuretoadoptby someorganizations(Judgeetal.,2010;Kossentini&Othman,2014). Anotherformofisomorphismisnormativeisomorphism,which referstocollectivevaluesthatstandardizethoughtswithin institu-tionalenvironments,andthiscouldleadaccountingprofessionals toputpressureinfavourofadoptingIFRSforSMEs(Judgeetal., 2010;Kossentini&Othman,2014).

Macroeconomicfactorsaffectandexplainaccountingpractices, and these include the history of a colonial country, the stage ofitseconomicdevelopment,financialsystem,politicalsystem, legalsystem,educationalsystemandculture,amongotherfactors (Anghel,2013;Elliot&Elliot,2013;Gray&Radebaugh,2002;Nobes &Parker, 2000;Nobes, 1998). For Alhashim and Arpan(1992), themostimportantfactorsinfluencingaccountingareeconomic, social,thelegalsystem,cultureandpoliticalsystem.Here,several studiesfocusonthemicroeconomicfactorsrelatedtofirm charac-teristicsthataffectadoptionofIFRS(Affes&Callimaci,2007;Francis etal.,2008;Leuz&Verrecchia,2000;Murphy,1999),while oth-ersfocusonmacroeconomicfactorsthatcouldbedeterminantsof IFRSadoption(Archambault&Archambault,2009;Clementsetal., 2010;Hopeetal.,2006;Lasmin,2011;Ramanna&Sletten,2014; Shima&Yang,2012;Zeghal&Mhedhbi,2006;Zehri&Chouaibi, 2013).

Based on previousstudies about thedeterminant factors of IFRSadoptionandonthespecificitiesofIFRSforSMEs,the fac-torschosenareeducationlevel,theavailabilityofanationalsetof financialaccountingstandardsforSMEs,familiaritywithIFRS,the legalsystem,foreignaid,thequalityofnationalfinancial account-ingstandardsandtherelationshipbetweenaccountingstandards andtaxrules(Archambault&Archambault,2009;Delcoure&Huff, 2015;Felski,2015;Johnson,2011;Judgeetal.,2010;Kaya&Koch, 2015;Kolsi&Zehri,2013;Kossentini&Othman, 2014;Lasmin, 2011;Ramanna&Sletten,2009;Shima&Yang,2012;Zeghal& Mhedhbi,2006;Zehri&Chouaibi,2013).

Educationlevel

Germon,MeekandMueller(1987)foundapositiverelationship betweeneducationlevelandthecompetenceofaccountants,and

Radebaugh(1975)and Mueller(1968)revealedtheinfluenceof educationlevelonaccountingpractices.Financialaccounting stan-dardsarelessdevelopedwhenaccountantshavelittleexperience andknowledgeofcomplexaccountingissues,andifthe profes-sionalbodyisdevelopedandstrongitismorelikelytodevelop asophisticatedandrigoroussetoffinancialaccountingstandards (Ding,Hope,Jeanjean&Stolowy,2007).Indeed,accountants’lack oftraining inapplyingIFRS for SMEsisoneof themain obsta-clestoimplementingthestandard(Albuetal.,2013;Albu,Albu, &Alexander,2014;Kılıçetal.,2014;Perera&Chand,2015;Roberts &Sian,2006;Uyar&Güngörmüs¸,2013).Besides,thepreparersof EuropeancountriessaythatIFRSforSMEsisnotsuitableina Euro-peancontextbecauseofthedifficultyinapplyingthestandard, sinceitistoosimilartothefullIFRSdespiteeffortstosimplifyit (Quagli&Paolini,2012).FullIFRSareverycomplexandrequire deepknowledgenotonlyofaccountingbutalsooffinance(Zehri &Chouaibi,2013).Educationlevelcouldbeusedasa proxyfor normative isomorphism,this being a mechanism that supports institutionalisomorphism(Judgeetal.,2010;Kossentini&Othman, 2014).

Althoughthereisnospeciﬁcmeasureofaccountants’levelof knowledge(Judgeetal.,2010),Carus(2002)andChoiandMeek (2008)showedarelationshipbetweeneducationleveland accoun-tants’expertise,andthisisusedbyArchambaultandArchambault (2009),ShimaandYang(2012)andZeghalandMhedhbi(2006)in theirstudiesoftheinﬂuenceofmacroeconomicfactorsonadoption offullIFRS.

Weexpectthatcountrieswithmoreeducationaremorelikely toadoptIFRSforSMEs,becausepreparersofﬁnancialstatements andstakeholderswillbeabletoread,understandandapplyIFRS forSMEs.ThisisshownforfullIFRSadoptionbyArchambaultand Archambault(2009),Judgeetal.(2010)andShimaandYang(2012)

andinthecaseofdevelopingcountriesbyKolsiandZehri(2013),

ZeghalandMhedhbi(2006)andZehriandChouaibi(2013). How-ever,intheonlystudyofIFRSforSMEs,norelationshipisfound betweeneducationlevelandthelikelihoodofadoptingIFRSfor SMEs(Kaya&Koch,2015).Thus,theﬁrsthypothesisis:

H1. Countries withhighereducationlevels aremore likelyto adoptIFRSforSMEs.

NationalsetofﬁnancialaccountingstandardsforSMEs

IssuingIFRSforSMEswastheIASB’sanswertocountriesthat werelookingforasimplifiedversionofthefullIFRS(Jermakowicz& Epstein,2010),mainlycountrieswhichdidnothaveanaccounting systemforthosecompaniesandthereforecouldadoptthat finan-cialaccountingstandardwithoutincurringcostsindevelopingtheir ownstandards(Chua&Taylor,2008;Irvine,2008;Pacter,2009) andconsideringfullIFRSadoptiontoocomplexforSMEs( Dang-Duc,2011;IASB,2009a;Quagli&Paoloni,2012;Tyrrall,Woodward, &Rakhimbekova,2007).InEUcountries,companieshaveto pre-pareatleastindividualfinancialstatementsinaccordancewiththe accountingdirectives(thefourthandseventhones),IFRSforSMEs beingoptional.Moreover,IFRSforSMEsdoesnotservethe objec-tiveofreducingtheadministrativeburdenanditisincompatible withtheaccountingdirectives.Besides,insomecountriesfinancial accountingisusedfortaxpurposesanddividends(Quagli&Paolini, 2012).Forexample,countriessuchasLebanon,Slovakia,Austria andRussiathinkthatSMEsshouldpreparefinancialstatementsfor taxpurposes(Perera&Chand,2015).Allthesecouldimplychanging thelaworevenchangingIFRSforSMEs.

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Thus,weexpectthatcountrieswithouttheirownsetof finan-cialaccountingstandardsforSMEsaremorelikelytoadoptIFRSfor SMEs.Chamisa(2000)foundthatcountriesarelesslikelytoadopt thefinancialaccountingstandardsofanothercountry,and coun-trieswiththeirownnationalfinancialaccountingstandardswould belesslikelytoadoptanothersetofstandardsbecausetheymay losetheirpowerinestablishingstandards(Johnson,2011;Kaya& Koch,2015).Therefore,thefollowinghypothesisis:

H2. Countrieswithoutanationalsetofﬁnancialaccounting stan-dardsforSMEsaremorelikelytoadoptIFRSforSMEs.

FamiliaritywithIFRS

BothfullIFRSandIFRSforSMEsareprinciplesbased,IFRSfor SMEsbeingasimplifiedversionofthefullIFRS.EvenifIFRSforSMEs islesscomplexthanfullIFRS,itisstilltoocomplexforSMEs(Perera &Chand,2015***).Therefore,wecanconcludethatcountriesthat haveadopted fullIFRS aremore experienced andfamiliar with implementingIFRSforSMEs.ForinstanceHongKong, Malaysia, ChileandUruguayhaveadoptedIFRSforSMEs,butwithafew mod-ifications,andtheyalsousefullIFRSforlistedcompanies.Onthe otherhand,Bolivia,China,Egypt,Indonesia,IndiaandJapanhave adoptedneitherfullIFRSnorIFRSforSMEs.Thiscouldleadusto expectthatcountriesthatdonothaveanyfamiliaritywithfullIFRS willbelesslikelytoadoptIFRSforSMEs.Itisthefirsttimethis factorhasbeenstudied,andthethirdhypothesisis:

H3. Countriesmore familiarwithapplying IASBstandardsare morelikelytoadoptIFRSforSMEs.

Legalsystem

Beingpartofacertaingroupofcountriesisafactorthatcan influ-enceanaccountingsystem(Nobes,1998).Legalsystemsaredivided incommonlawandcodelawandthisisafactorinfluencing coun-tries’accountingstandards(Doupnik&Slater,1995;Nobes,1983). ThecommonlawsystemisbasedonEnglishlawandisshapedby precedentsfromjudicialdecisions(includingtheUnitedKingdom (UK)anditsformercoloniessuchastheUnitedStates(US),Canada, Australia,andIndia).Themaingovernancemodelisthefinancial market,themainusersoffinancialaccountingdataareinvestors andcreditorsandtheStateisnotaprivilegeduser.Thecodelaw systemoriginatedinRomanlaw,usingstatutesandcomprehensive codes(includingFrance,Germany,Belgium,Luxembourg, Portu-gal,Spain,Netherlands,Italy;LaPorta,Lopez-de-Silanes,Shleifer, &Vishny,1998).Themainusersoffinancialaccountingfiguresare creditorsandtheStateisgreatlyinvolvedintheprocessof set-tingstandards.Inparticular,banksarethemaincreditors.TheIFRS aretheresultofthecommonlawlegalsystem(Botzem&Quack, 2009),andthiscouldinfluenceIFRSadoption,ascorroboratedby thefindingsofFelski(2015),KolsiandZehri(2013)Kossentiniand Othman(2014),Shimaand Yang(2012)and Zehriand Chouaibi (2013).However,Hopeetal.(2006)didnotfindanyinfluenceof thelegalsystemonIFRSadoption.KayaandKoch(2015)findthe sameinfluenceofthelegalsystemonadoptionofIFRSforSMEs. Hence,ourfourthhypothesisis:

H4. Countrieswithacommonlawlegalsystemaremorelikelyto adoptIFRSforSMEs.

Foreignaid

TheWorld Bank and theInternationalMonetaryFund(IMF) help developing countries with financing difficulties by lend-ing money, and providing technical and training support in applyingthebestpracticesinseveralareas,namelyinfinancial

reporting(Irvine,2008;Neu&Gomez,2006;Neu&Ocampo,2007). TheWorldBankemphasisestheimportanceoffinancialreporting in its development strategy for better financial markets and accountability(Kaya&Koch,2015).Oneofthelong-termbenefits ofadoptingIFRSforSMEsisbetterlendingconditionsfromtheIMF andtheWorldBank(Gordon,Loeb,&Zhu,2012).AsIASBfinancial accountingstandardsareknownworldwide,countriessubjectto aforeignaidprogrammehaveanincentivetoadoptthem(Mir& Rahaman,2005).Romania,Jordan,Egypt,Kazakhstan,Pakistanand ZimbabwearejustafewexamplesofcountriesthattheWorldBank, theIMF,theOrganisationforEconomicCo-operationand Devel-opment(OECD)ortheAsianDevelopmentBank(ADB)demanded IFRSadoptionforlendingmoney(Al-Akra,Ali,&Marashdeh,2009; Albu,Albu, Bunea,Calu,&Girbina,2011;Ashraf&Ghani,2005; Chamisa,2000;Hassan,2008;Mir&Rahaman,2005;Tyrralletal., 2007).TheWorldBankReportsontheObservanceofStandards and Codes(ROSC)in Bosniaand Herzegovina(2010), Mauritius (2011)andSlovenia(2014)recommendtheuseofIFRSforSMEs. Foreignaidcanbeseenasaproxyforcoerciveisomorphism,which isonemechanismofinstitutionalisomorphism(Judgeetal.,2010; Kossentini&Othman,2014).Judgeetal.(2010),Kossentiniand Othman(2014)andLasmin(2011)showedthepositiveinfluence offoreignaidonfullIFRSadoption.HoweverRamannaandSletten (2014)and Kayaand Koch(2015)didnot findanyevidenceof thatinfluence,and Archambaultand Archambault(2009)found a negativeinfluence offoreignaidonfull IFRS adoption.These mixedresultsleadustothefifthhypothesis:

H5. Countriessubjecttoaforeignaidprogrammearemorelikely toadoptIFRSforSMEs.

Qualityofnationalﬁnancialaccountingstandards

Theobjectiveofchangingthesetoffinancialaccounting stan-dardsistoimprovefinancialreporting(Daske&Gebhardt,2006). Knowing this, Ramannaand Sletten(2009) and Kayaand Koch (2015) show that in countries where the quality of financial accountingstandardsishighIFRSadoptionislesslikely,sincethe costofchangingishigh.Examplesofcountrieswithhighquality nationalfinancialaccountingstandardsareAustralia,France, Ger-many,CanadaandtheUS,andthesehavenotsofaradoptedIFRS forSMEs(Perera&Chand,2015).SincethemainusersofSMEs’ financialreportingarethegovernmentandbanks,managersdonot liketoallocateresourcestotheaccountingsystem,andthelatter arenotsatisfiedwiththequalityoffinancialreporting.Albuetal. (2013)findevidencefortheCzechRepublic,Hungary,Romaniaand Turkey,andKılıçetal.(2014)forTurkey,thatadoptionofIFRSfor SMEswouldimprovethetransparencyandqualityofaccounting information.Thusthesixthhypothesisis:

H6. Countries with highquality national ﬁnancial accounting standardsarelesslikelytoadoptIFRSforSMEs.

Relationshipbetweenaccountingstandardsandtaxrules

InseveralcountriesthemainuserofSMEs’financialreportingis consideredtobethetaxauthority(Al-Akraetal.,2009;Albuetal., 2013, 2014, 2011; Jermakowicz & Gornik-Tomaszewski, 2006; Perera&Chand,2015).Nevertheless,themainpurposeofIFRSfor SMEsisnottosatisfytaxauthorityneeds(IASB,2009b,2015).In somecountries,SMEshavetocomplywithsometaxrulesintheir financialreportingandfullIFRSadoptionwouldbean administra-tiveburden(Albuetal.,2013;Bohuˇsová&Blaˇsková,2012).When standardsettersaredependentonthegovernmentandtaxesrules are accounting based, the focus of accounting standards is on taxationandcompliance(Felski,2015).Thecontrolandlegitimacy ofthestandardsetterinfinancialreportinginRomaniaprevents

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IFRSadoption(Albuetal.,2014).ThemainreasonforIFRSadoption inBrazilin2007wasthereductionofthetaxauthority’sinﬂuence onﬁnancialreporting(Rodrigues,Schmidt &DosSantos,2012).

PhuongandNguyen(2012)pointoutthatthestrictlinkbetween taxationandaccountinginVietnammaylimitthesuccessofIFRS adoption.ThisisalsooneofthemainobstaclestoIFRSadoption inTunisia(Trabelsi,2010).Felski(2015),KossentiniandOthman (2014),ShimaandYang(2012)andKayaandKoch(2015)found evidencethat theimportanceof taxrules negativelyinﬂuences IFRSadoption.Thisleadstoourseventhhypothesis:

H7. Countries witha strongrelationship between accounting standardsandtaxrulesarelesslikelytoadoptIFRSforSMEs.

Methodology

Sample

WeusetheIASBwebsitethatcontainsthecountryprofilesof IFRSandIFRSforSEMsadoption(IASB,2016).Startingfrom143 countries, ourfinal sampleis composedof 84countriesspread overfivecontinentsforwhichinformationisfullyavailable.The sampleincludestwogroupsofcountries,onegroupof39 coun-triesthathaveadoptedIFRSforSMEswithorwithoutchanges,and anothergroupof45countries,non-adoptersofIFRSforSMEsuntil March2016.Table1showsthelistofcountries,andmost coun-triesadoptingIFRSforSMEsarefromAsia(13countries),America (12countries)andAfrica(8countries).Theleastadopting coun-triesarefromEurope(29countries).Theonlytwocountriesfrom Oceaniaincludedarenon-adopters.Nevertheless,theadoptionof IFRSforSMEsisdynamic,sothenumberofadoptersincreasesover time.ThedataoninstitutionalfactorsaregatheredfromtheWorld Bank,IASB(2016),CIAWorldFactbook,TheGlobal Competitive-nessReportbytheWorldEconomicForum(WEF)(2011)andPwC

(2011)asshowninTable2.TheinformationonIFRSforSMEs adop-tion,nationalsetofﬁnancialaccountingstandardsandfamiliarity withIFRSvariablesisfrom2016,foreducationlevelandforeign aiditisbasedonanaverageof2005–2009,forqualityofnational ﬁnancialaccountingstandardsitis2010andfortherelationship betweenaccountingstandardsandtaxrulesitis2011aspresented inTable2.

Regressionmodel

Weusethefollowinglogitmodeltotestourhypothesessince thedependentvariableisdichotomous.Themodelwasusedin sev-eralstudiesonIFRSadoption(Archambault&Archambault,2009; Clementsetal.,2010;Hopeetal.,2006;Kaya&Koch,2015;Lasmin, 2011;Zeghal&Mhedhbi,2006;Zehri&Chouaibi,2013):

IFRSsmei=ˇ0+ˇ1EDUi+ˇ2NGAAPi+ˇ3IFRSi+ˇ4LAWi+

ˇ5AIDi+ˇ6QUAi+ˇ7TAXi+ˇ8LGDPi+ˇ9DEVi+εi (1)

where

IFRSsme 1ifthecountry(i)hasadoptedIFRSforSMEs,0otherwise. EDU Educationlevelmeasuredbytotaluniversityenrolmentinthe

totalpopulationattheageofuniversityenrolment.

NGAAP 1ifthecountryhasitsownnationalsetofﬁnancialaccounting standards,0otherwise.

IFRS 1ifthecountryrequiresorpermitstheuseofIFRSforlisted companies,0otherwise.

LAW 1ifthecountryhasacommonlawlegalsystem,0otherwise. AID Percentageofforeignaidingrossdomesticproduct.

QUA Qualityofauditingstandardsandaccountingstandardsfortheyear 2009,measuredonascalefrom1(veryweak)to7(verystrong). TAX 1iftaxableincomeiscomputedbasedonaccountingincome,0

otherwise.

LGDP Logofgrossdomesticproduct.

DEV 1ifthecountryisdeveloped,0otherwise.

Table1

Sampleofcountriesbyregion.

CountriesthathaveadoptedIFRSforSMEs CountriesthathavenotadoptedIFRSforSMEs Asia America Africa Europe Oceania Asia America Africa Europe Oceania Armenia Azerbaijan Bahrain Georgia HongKong Israel Jordan Cambodia Malaysiaa Pakistana Philippines Qatar SaudiArabiaa Barbados Chileb Colombia Ecuador Guatemala Honduras Jamaica Panama Peru ElSalvador Uruguaya Venezuelab Nigeria Tanzania Uganda Kenya Madagascar Mauritius Botswana Ghana Switzerland UKa Irelanda Macedonia Serbia Ukraine China Indonesia India Japan SouthKorea Mongolia Oman Russia Thailand Peru Vietnam Bolivia Mexico EUA Egypt Albania Austria Belgium Bulgaria Cyprus Republic CzechRep. Denmark Spain Estonia Finland France Greece Croatia Hungary Iceland Italy Lithuania Luxembourg Latvia Malta Netherlands Norway Poland Portugal Romania Slovakia Slovenia Sweden Australia NewZealand

a_Countries_which_have_changed_IFRS_for_SMEs.

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Table2

Measurementanddatasource.

PanelA:Dependentvariable Variablename Variablelabel Measurement

IFRSsme IFRSforSMEs Variablethattakesthevalueof1ifthecountryadoptsIFRSforSMEsbyMarch 2016and0otherwise.

PanelB:Independentvariable

Variablename Variablelabel Measurement Datasource Expectedsign EDU Educationlevel Enrolmentatuniversity(averageintheperiod2005–2009

ofstudentsenrolledatuniversityinthetotalpopulationof thatage).

WorldBank. +

NGAAP Nationalsetofﬁnancialaccounting standardsforSMEs

1ifthecountryhasasetofﬁnancialaccountingstandards forSMEsand0otherwise.

IASB(2016). −

IFRS FamiliaritywithfullIFRS 1iffullIFRSarepermittedorrequiredforlistedcompanies and0otherwise.

IASB(2016). +

LAW Legalsystem 1ifthecountryhasacommonlawsystemand0otherwise. CIAWorldFactbook,orif notavailable,fromtheLa Portaetal.(1998) classiﬁcation.

+

AID Foreignaid Foreignaidingrossdomesticproduct(averageforthe period2005–2009).

WorldBank. +

QUA Qualityofthenationalﬁnancial accountingstandards

Qualityofauditingandaccountingstandardsonascale from1to7.

TheGlobal

CompetitivenessReport (WEF,2011).

− TAX Relationshipbetweenaccounting

standardsandtaxrules

1iftaxableincomeisbasedonaccountingincomeand0 otherwise.

PwC(2011). −

LGDP LogofGDP Logofgrossdomesticproduct. WorldBank. −

DEV Developmentofacountry 1ifthecountryisdevelopedand0otherwise. WorldBank. −

Measurementofvariables

TomeasuretheadoptionofIFRSforSMEsweusea dichoto-mousvariablethattakesthevalueof1ifthecountryadoptsIFRS for SMEs and 0 otherwise (Archambault &Archambault, 2009; Clementsetal.,2010;Hopeetal.,2006;Lasmin,2011;Zeghal& Mhedhbi,2006;Zehri&Chouaibi,2013).Somestudiesaddtothe variableifthecountryhasadoptedIFRSvoluntarilyoras manda-toryandifforallcompaniesorjustforsome(Judgeetal.,2010; Kossentini&Othman,2014;Ramanna&Sletten,2009,2014;Shima &Yang,2012).Bothmeasureshavelimitations,sincethereason foradoptingIFRSforSMEsisdifferentbetweencountriesandover time.InthisstudyweconsideradoptionofIFRSforSMEsbothif adoptionisvoluntaryormandatoryasatMarch2016,knowing thatIFRSforSMEsismandatoryforonlytwocountriesinthe sam-ple.MostpreviousstudiesusetheDeloitteIASplusdatabaseinthe classiﬁcationoffullIFRSadoptersandnon-adopters(Archambault &Archambault,2009; Clementsetal., 2010;Hope et al.,2006; Lasmin,2011;Ramanna&Sletten,2014;Shima&Yang,2012;Zehri &Chouaibi,2013).SincetheinformationonIFRSforSMEsisnot updated,weusethecountryproﬁleinformationoftheIASB.The variablesofthestudyaresummarizedinTable2.

Theyear2009isusedasthereferenceperiodtomeasurethe explanatoryvariablesinthedecisiontoadoptIFRSforSMEs,since IFRSforSMEswasissuedbyIASBinJuly2009(IASB,2009a). When-everpossible,theexplanatoryvariablesaremeasuredusingdata from2009ortheaveragefromthepreviousyears(2005–2009).All theexplanatoryvariablesaremacroeconomicandnoneare microe-conomic.

TheroleofeducationintheadoptionofIFRSisconﬁrmedby severalstudies(Archambault&Archambault,2009;Judgeetal., 2010;Kolsi&Zehri,2013;Shima&Yang,2012;Zeghal&Mhedhbi, 2006;Zehri&Chouaibi,2013).Educationlevelcouldbemeasured byliteracyrates(Archambault&Archambault,2009;Shima&Yang, 2012;Zeghal &Mhedhbi, 2006;Zehri &Chouaibi,2013).Other waystomeasureeducationlevelare thepercentage ofprimary schoolenrolment (Felski,2015), the averageenrolment in sec-ondaryschoolsasapercentageofthetotalpopulation(Judgeetal.,

2010;Lasmin,2011)andtotalenrolmentatuniversity,expressed asa percentage ofthetotal populationattheageof university enrolment(Kaya&Koch,2015;Kossentini&Othman,2014).Inthis study,weusethelastsincemostprofessionalaccountantsshould haveaﬁrstdegreeandweexpectapositiveinﬂuenceonadoption ofIFRSforSMEs.

Informationabouttheexistenceof acountry’s ownnational financialaccountingstandardsforSMEsisgatheredfromtheIASB profileforeachcountry.Weexpectanegativeinfluenceon adop-tionofIFRSforSMEs.

ThefirstsetofstandardsissuedbytheIASBweretheIFRS,mainly tosatisfyinvestors’needs,havingbeenadoptedby119countries especiallyforlistedcompanies(Jorissen,Lybaert,&VandePoel, 2006;Quagli&Paoloni,2012).ThisdataisobtainedfromtheIASB profile.WeexpectapositiveinfluenceonadoptionofIFRSforSMEs ifcountriespermitorrequiretheuseofIFRSforlistedcompanies.1

Thetypeoflegalsystemisusuallytreatedasadichotomous variablethattakesthevalueof1forcommonlawcountriesand0for codelawcountries(Archambault&Archambault,2009;Hopeetal., 2006;Kaya&Koch,2015;Shima&Yang,2012;Zehri&Chouaibi, 2013).Inthisstudyweusethesamemeasureandexpectapositive inﬂuenceonadoptionofIFRSforSMEs.

Foreignaidismeasuredasapercentageofloansingross domes-ticproductandthiscouldinﬂuenceIFRSforSMEsadoption(Lasmin, 2011;WorldBank,2015).ThismeasureisusedbyArchambaultand Archambault,(2009),Felski(2015),Judgeetal.(2010)andLasmin (2011)andisgatheredfromtheWorldBank(2016).Weexpecta positiveinﬂuenceofforeignaidonadoptionofIFRSforSMEs.

To measure the quality of the national ﬁnancial accounting standardsweusetheindexofTheGlobalCompetitivenessReport 2009–2010(Bohuˇsová&Blaˇsková,2012;Kaya&Koch,2015).We

1_This_variable_assumes_the_value_of₀_even_if_IFRS_is_permitted_in_the_following cases:(a)IFRSarenotmuchused(JapanandMadagascar);(b)IFRSarerestricted toafewcompaniesthatcomplywithseveralrequirements(Japan);(c)IFRSarenot formallyadopted(Madagascar);(d)IFRSarejustusedbytheﬁnancialindustry(Saud Arabia).

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expectanegativeinﬂuenceofthisvariableonadoptionofIFRSfor SMEs.

Therelationshipbetweenaccountingstandardsandtaxrules ismeasuredbyabinaryvariablethattakesthevalueof1if tax-ableincomeisbasedonaccountingincomeand0otherwise(Kaya andKoch,2015;KossentiniandOthman,2014).Thisinformationis obtainedfromPwC(2011).Theinﬂuenceexpectedisthatthecloser therelationshipbetweenaccountingstandardsandtaxrulesthe lesslikelyisadoptionofIFRSforSMEs.

Thisstudyusestwocontrolvariables,oneforcontrollingthe sizeofthecountry,whichisthelogofgrossdomesticproduct,and anothertocontrolforcountrydevelopment,whichisthe coun-try’slevelofdevelopment(Felski,2015;Hopeetal.,2006;Judge etal.,2010;Kaya&Koch,2015).Economicfactorsareimportant determinantsofthedevelopmentofaccountingsystems(Zeghal& Mhedhbi,2006).Onewaytocontrolforthesizeofthecountrycould betouseadopterandnon-adoptercountriesofthesamesize,asdo

ZeghalandMhedhbi(2006).Hopeetal.(2006)usegross domes-ticproductpercapita.KayaandKoch(2015)usethelogofgross domesticproduct.Thisstudyusesthelogofgrossdomesticproduct fortheperiod2005–2009(WorldBank,2016),expectinganegative relationwithadoptionofIFRSforSMEs.

Tocomparecountries, somestudiesincludeonly developing countriesin their samples (Kolsi & Zehri, 2013; Lasmin, 2011; Zeghal&Mhedhbi, 2006;Zehri &Chouaibi,2013)or emergent countries(Delcoure &Huff, 2015;Kossentini &Othman, 2014). Someoftheinstitutionalfactorsstudiedarelikelytobemore appli-cabletodevelopingcountriesthantodevelopedones.Becausethis studyincludesseveraltypesofcountriesitisnecessarytocontrol forthis,andabinaryvariableisusedwiththevalueof1for devel-opedcountriesand0otherwiseandanegativerelationisexpected

withadoptionofIFRSforSMEs.Thisinformationisgatheredfrom theWorldBank(2015).

Resultsandﬁndings

Descriptivestatistics

ThedescriptivestatisticsarepresentedinTable3.The paramet-rict-test(andthenon-parametricMann–Whitney)ofdifferencein meansacrossadoptersandnon-adoptersrejectsthenull hypoth-esisofnodifferenceatthe10%level(excludingthevariablesof foreignaid(AID)andrelationshipbetweenaccountingstandards andtaxrules(TAX)).Themeanofeducationlevel(EDU),qualityof thenationalfinancialaccountingstandards(QUA)andsizeofthe country(LGDP)islowerinadoptersthaninnon-adopters,which confirms expectations.Thefrequencyof theuseoffullIFRS for listedcompanies(IFRS)islowerinnon-adoptercountriesaswellas theavailabilityofanationalsetoffinancialaccountingstandards (NGAAP).Morecountrieshaveacommonlawlegalsystemthana codelawlegalsystem(LAW).

Multivariateanalysis

Table4showthePearsoncorrelationsbelowthediagonaland theSpearman correlations above the diagonal. Thiscorrelation matrixistoexaminewhethermulticollinearityisapotentialissue. All the correlations are below 0.80. To confirm that collinear-itydoesnotaffectourresultswe performedamulticollinearity testasshowninTable5.Wefindthatallvariance inflation fac-tors(VIF)arebelowthestandardacceptablelevelofthree(Judge, Hill, Griffiths,Lutkepohl, &Lee,1988).Eventhoughthere is no

Table3

Descriptivestatistics.

PanelA:Descriptivestatisticsforquantitativevariables

Adopters(N=39) Non-adopters(N=45)

Variables Average Median Standarddeviation Average Median Standarddeviation t-Test Explanatoryvariables EDU 32.18 31.23 20.795 55.60 57.04 23.232 −4.837*** AID 1.76 0.3 4.924 0.44 0.01 1.787 1.589 QUA 4.72 4.7 0.675 5.10 5.1 0.754 −2.397** Controlvariables LGDP 10.66 10.51 0.644 11.30 11.38 0.803 −3.934***

PanelB:Descriptivestatisticsforqualitativevariables Adopters(N=39) Non-adopters(N=45)

Variables Frequency Frequency t-Test U-test

Independentvariables NGAAP 1 36% 93% −6.646*** −5.536*** 0 64% 7% IFRS 1 95% 82% 1.865* −1.775* 0 5% 18% LAW 1 41% 13% 2.920*** −2.862*** 0 59% 87% TAX 1 87% 80% 0.885 −0.875 0 13% 20% Controlvariables DEV 1 23% 62% −3.912*** −3.583*** 0 77% 38% * _Significant_at_0.10. ** _Significant_at_0.05. ***_Significant_at_0.01.

Notes:EDUiseducationlevelmeasuredbytotalenrolmentsatuniversity.NGAAPis1ifthecountryhasitsownnationalsetofﬁnancialaccountingstandards,0otherwise. IFRSis1ifthecountryrequiresorpermitstheuseofIFRSforlistedcompanies,0otherwise.LAWis1ifthecountryhasacommonlawlegalsystem,0otherwise.AIDis foreignaidasapercentageofgrossdomesticproduct.QUAisthequalityofauditingstandardsandaccountingstandards.TAXis1iftaxableincomeiscomputedbasedon accountingincome,0otherwise.LGDPisthelogofgrossdomesticproduct.DEVis1ifthecountryisdeveloped,0otherwise.

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Table4

PearsonandSpearmancorrelations.

Variables IFRSsme EDU NGAAP IFRS LAW AID QUA TAX LGDP DEV

IFRSsme 1 −0.468** −0.608** 0.195 0.314** 0.469** −0.261* 0.096 −0.404** −0.393** EDU −0.471** ₁ _0.456** _0.209 _−0.260* _−0.531** _0.359** _−0.170 _0.401** _0.521** NGAAP −0.608** _0.457** ₁ _−0.260* _−0.153 _−0.498** _0.282** _−0.113 _0.588** _0.373** IFRS 0.195 0.197 −0.260* ₁ _−0.032 _−0.069 _0.130 _−0.066 _−0.205 _0.104 LAW 0.314** _−0.269* _−0.153 _−0.032 ₁ _0.105 _0.195 _−0.024 _−0.034 _0.126 AID 0.182 −0.211 −0.251* _0.056 _−0.072 ₁ _−0.459** _0.137 _−0.592** _−0.569** QUA −0.256* _0.345** _0.272* _0.163 _0.197 _−0.223* ₁ _−0.146 _0.267* _0.701** TAX 0.096 −0.165 −0.113 −0.066 −0.024 0.084 −0.150 1 −0.141 −0.118 LGDP −0.398** _0.396** _0.574** _−0.265* _−0.011 _−0.295** _0.258* _−0.150 ₁ _0.398** DEV −0.393** _0.517** _0.373** _0.104 _0.126 _−0.229* _0.682** _−0.118 _0.391** ₁ *_Signiﬁcant_at_0.10. **_Signiﬁcant_at_0.05.

Notes:PearsoncorrelationcoefficientsareshownbelowthediagonalandtheSpearmancorrelationcoefficientsareshownabovethediagonal.IFRSsmeis1ifthecountryhas adoptedIFRSforSMEsbyMarch2016,0otherwise.EDUiseducationlevelmeasuredbytotalenrolmentsatuniversity.NGAAPis1ifthecountryhasitsownnationalset offinancialaccountingstandards,0otherwise.IFRSis1ifthecountryrequiresorpermitstheuseofIFRSforlistedcompanies,0otherwise.LAWis1ifthecountryhasa commonlawlegalsystem,0otherwise.AIDisforeignaidasapercentageofgrossdomesticproduct.QUAisthequalityofauditingstandardsandaccountingstandards.TAX is1iftaxableincomeiscomputedbasedonaccountingincome,0otherwise.LGDPisthelogofgrossdomesticproduct.DEVis1ifthecountryisdeveloped,0otherwise.

Table5

LogitregressionresultsofadoptionofIFRSforSMEs.

Variables Prediction Coefficient(z-stats) WaldChi-Square VIF Independentvariables EDU + −0.030(0.116) 2.473 2.000 NGAAP − −2.273(−0.009)*** _6.829 _1.852 IFRS + 2.211(0.065)* _3.412 _1.374 LAW + 2.758(0.005)*** _8.046 _1.273 AID + −0.008(0.937) 0.006 1.143 QUA − −0.517(0.415) 0.663 2.000 TAX − 0.479(0.611) 0.258 1.054 Controlvariables LGDP − 0.123(0.811) 0.057 1.763 DEV − −1.433(−0.145) 2.126 2.404 Intercept 1.543(0.805) 0.061 R2_Nagelkerke _0.633 2 _53.989*** Hosmer–Lemeshow 8.764(0.363) N 84 *_Significant_at_0.10. ***_Significant_at_0.01.

statistical correlation among themacroeconomic factors,Isidro etal.(2016)statethatmanyofthemacroeconomicfactorscould be economically correlated. To avoid having two or more fac-torsexplainingthesameandtoidentifythemwecouldperform a principalfactor analysis.To test ifprincipal factor analysisis suitableweperformtheKaiser–Meyer–Olkintestand thevalue is 0.526,meaningthat thecorrelation betweenthevariables is weakandthereforetheprincipalcomponentanalysisisnot suit-able.Werantheregressionaddingthevariablesonebyoneand in a differentsequence. Two possiblevariables couldbe elimi-nated,AIDandTAX,buttheresultsareverysimilartothosewe present.

Table5 presentsthemain resultsof thelogitregression for theinﬂuenceofmacroeconomic factorsonadoptionofIFRS for SMEs. Adoption of IFRS for SMEsis explained by 63.3percent by the model. The 2 _test _is _signiﬁcant _and _we _can _conclude

thatthemodelisreliable.Thesameconclusionisreachedbythe Hosmer–Lemeshowtest,sincewecannotrejectthenull hypothe-ses. The results show that countries without a national set of ﬁnancialaccountingstandards,countrieswithacommonlawlegal system and those familiar withIFRS are more likely to adopt IFRSforSMEs,whichisinlinewiththesecond,thirdandfourth

hypotheses,sincethecoefficientsarestatisticallysignificantatleast ata10%level.However,theothercoefficientsarenotstatistically significant,meaningitisnotpossibletoconfirmtheother hypothe-ses.Thatis,itisnotpossibletoconfirmthattheeducationlevel influencesthelikelihoodofadoptingIFRSforSMEs(asinKaya& Koch’s(2015)study),thatcountriessubjecttoaforeignaid pro-grammearemorelikelytoadoptIFRSforSMEs(asinthestudy byHopeetal.(2006)regardingIFRS),orthatcountrieswithhigh qualityfinancialaccounting standardsanda strongrelationship betweenaccountingstandardsandtaxrulesarelesslikelytoadopt IFRSforSMEs.

Theseresultssuggestthatthemostimportantinstitutional fac-torsinfluencingthedecisiontoadoptIFRSforSMEsarefamiliarity with, and experience of IFRS financial reporting, implying that thetransitioncostsarelowerandconfirmingtheimportanceof havingsomeexperienceofIFRS reportingdue toitscomplexity andtheneedforthoroughknowledgeofaccountingandfinance. Since theIASB harmonizationprojectis controlledbycountries thathaveacommonlawlegalsystem,naturallythesecountries aremorelikelytoadoptIFRSforSMEs.Ifthecountryhasno com-pletesetofnationalfinancialaccountingstandardsofitsown,the adoption of IFRS for SMEs is understandable, as this avoids all

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Table6

LogitregressionresultsofadoptionofIFRSforSMEs–differentmeasuresofeducationlevel.

Variables Prediction EDULIT

Coefficient(z-stats) EDUPS Coefficient(z-stats) EDUSS Coefficient(z-stats) Independentvariables EDULIT + −0.071(−3.566)* EDUPS + −0.293(−6.112)** EDUSS + −0.053(−1.045) NGAAP − −2.251(−4.592)** _−3.054_(−7.845)*** _−2.884_(−10.686)*** IFRS + 3.470(2.388) 3.747(4.606)** _1.613_(1.442) LAW + 2.599(6.205)** _3.043_(7.729)*** _1.858_(2.386) AID + 0.710(0.739) 0.571(0.562) 0.006(0.002) QUA − 0.184(0.052) 0.614(0.632) −0.024(−0.001) TAX − 0.667(0.446) 1.418(2.040) −0.267(−0.065) Controlvariables LGDP − 0.616(0.775) 0.682(0.738) 0.040(0.005) DEV − −1.979(−2.369) −2.106(−3.828)** _−1.951_(−3.543)* Intercept −4.189(−0.194) 14.388(1.439) 5.770(0.533) R2_Nagelkerke _0.691 _0.725 _0.621 2 _53.256*** _65.890*** _45.351*** Hosmer–Lemeshow 7.376(0.497) 6.521(0.589) 3.959(0.861) N 73 84 74 * _Significant_at_0.10. ** _Significant_at_0.05. ***_Significant_at_0.01.

thecostsofdeveloping acomplete setofaccountingstandards, despitethelikelihoodofdifficultyinapplicationduetobeingtoo similartofull IFRS. We can concludethat education, the qual-ityofnationalfinancialaccountingstandardsandtherelationship betweenaccountingandtaxareimportantfactors,butforfullIFRS adoption,asispointedoutbyseveralstudies,butnotforadopting IFRSforSMEs,becausecountriesusuallydecidetoadoptfullIFRS first.Notfindinganyrelationshipbetweenforeignaidand adop-tionofIFRSforSMEsconfirmsthemixedresultsfoundforfullIFRS adoption.

Robustnessandadditionaltests

Educationlevelcouldbemeasuredusingtheaverageliteracy rateformenandwomenaged15yearsormore(EDULIT)(Shima &Yang,2012;Zeghal&Mhedhbi,2006;Zehri&Chouaibi,2013), thepercentageofprimaryschoolenrolment(EDUPS)(Felski,2015) andthepercentageofsecondaryschoolenrolment(EDUSS)(Judge et al., 2010; Lasmin, 2011). Table 6 shows those results. The resultsarechanged,measuringeducationlevelbytheliteracyrate (EDULIT)andpercentageofprimaryschoolenrolment(EDUPS).

Table7

LogitregressionresultsofadoptionofIFRSforSMEs–additionalanalysis.

Variables Prediction TAXR

Coefficient(z-stats) EU Coefficient(z-stats) IFRS Coefficient(z-stats) OUT Coefficient(z-stats) Independentvariables EDU + −0.025(−1.701) −0.030(−2.065) −0.016(−0.875) −0.038(−2.043) NGAAP − −2.632(−6.869)*** _−1.645_(−2.999)* _−2.570_(−4.873)** _−4.657_(−7.593)*** IFRS + 3.450(4.873)** _2.882_(5.118)** _1.343_(1.804) _3.524_(4.877)** LAW + 1.841(4.444)** _2.281_(4.876)** _1.528_(3.536)** _5.917_(9.322)*** AID + 1.140(2.648) −0.035(−0.140) 0.265(0.414) −0.117(−1.079) QUA − 0.375(0.300) −0.532(−0.643) 0.226(0.166) −2.083(−4.222)** TAX − 1.029(1.108) −1.038(−1.585) 0.840(0.403) TAXR − −0.037(−0.558) EU − −2.378(−5.336)** Controlvariables LGDP − 0.889(1.504) −0.025(−0.002) −0.342(−0.422) −0.334(−0.257) DEV − −1.880(−2.844)* _−0.462_(−0.159) _−1.261_(−2.058) _−1.809_(1.647) Intercept −11.380(−1.563) 2.125(0.111) 5.697(0.729) 14.578(2.826) R2_Nagelkerke _0.683 _0.684 _0.560 _0.798 2 _58.699*** _60.285*** _45.190*** _73.711*** Hosmer–Lemeshow 5.651(0,686) 9.786(0.280) 10.426(0.236) 0.653(1.000) N 84 84 74 81 * _Significant_at_0.10. ** _Significant_at_0.05. ***_Significant_at_0.01.

Notes:EDUistheeducationlevel.NGAAPis1ifthecountryhasitsownnationalsetofﬁnancialaccountingstandards,0otherwise.IFRSis1ifthecountryrequiresorpermits theuseofIFRSforlistedcompanies,0otherwise.LAWis1ifthecountryhasacommonlawlegalsystem,0otherwise.AIDisforeignaidasapercentageofgrossdomestic product.QUAisthequalityofauditingstandardsandaccountingstandards.TAXis1iftaxableincomeiscomputedbasedonaccountingincome,0otherwise.TAXRisthe percentageoftaxrevenueingrossdomesticproduct.LGDPisthelogofgrossdomesticproduct.EUis1ifthecountryisamemberoftheEUor0otherwise.DEVis1ifthe countryisdeveloped,0otherwise.

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EducationlevelreducesthelikelihoodofadoptingIFRSforSMEs, sincethecoefficientisnegativeandstatisticallysignificant.This couldbeexplainedbythefactthathighlyeducatedprofessional accountantscouldthemselvesdevelopasetoffinancialaccounting standards(Dingetal.,2007)andthelackofqualifiedaccounting professionalsletsthemdefineasetofaccountingstandards,the easiestwaybeingtoadoptanestablishedsetofaccounting stan-dardssuchasIFRSforSMEs(Kossentini&Othman,2014).

The relationship between accounting and taxation couldbe measuredasthepercentageoftaxrevenueingrossdomestic prod-uct(TAXR).Countrieswheretaxrevenueishigheraresupposed tohavemorecontrolofmanagingtheirresourcesandmorestable ﬁnancialenvironments,whichimplieslesslikelihoodofadopting IFRSforSMEs(Kaya&Koch,2015).Theresultisthesame(not sta-tisticallysigniﬁcantat10%)asthemainmodel,ascanbeseenin

Table7(columnTAXR),andsoitisnotpossibletoconcludethere isaninﬂuenceonthecountry’sdecisiontoadoptIFRSforSMEs.

TheEuropeanCommissionhasdecidednottoadoptIFRSfor SMEs,mainlybecauseofincompatibilitybetweentheaccounting directiveandIFRSforSMEs,butitcanbeadoptedvoluntarily. Run-ningtheregressionwithanewvariablewiththevalueof1ifthe countryisamemberoftheEUor0otherwise(EU),thecoefﬁcientof thisnewvariableisnegativeandstatisticallysigniﬁcant,meaning thatEUcountriesarelesslikelytoadoptIFRSforSMEs(columnEU ofTable7).

IncludingthecountriesthatareconsideringtheadoptionofIFRS forSMEsasadoptersinthesample(IFRS),theresultsarevery sim-ilar(columnIFRSofTable7)tothemainmodel(Table5).

Lastly,ifweeliminateoutlierobservations(removing Switzer-land,MongoliaandOmanfromthesample)theresultsarevery similar(columnOUTofTable7),exceptforthevariableofthe qual-ityofnationalfinancialaccountingstandards,whichendsupbeing statisticallysignificant,leadingustoconcludethatinthecaseofa lowerqualityofnationalfinancialaccountingstandardsadoption ofIFRSforSMEsismorelikely.

Conclusions

Previousstudiesfoundarelationshipbetweeninstitutional fac-torsand fullIFRS adoption(Archambault&Archambault,2009; Clements,Neill,&Stovall,2010;Hope,Jin,&Kang,2006;Lasmin, 2011;Ramanna&Sletten,2014;Ritsumeikan,2011;Shima&Yang, 2012;Zeghal&Mhedhbi,2006;Zehri&Chouaibi,2013),butthere isa lackof studiesontheadoptionof IFRSfor SMEs.Itis very importanttostudySMEsconsideringthattheyrepresentmorethan 95percentofcompaniesworldwideandmakeagreat contribu-tiontojobcreation,technologicalinnovationandeconomicoutput. Usingasampleof84countriesandalogitregression,weanalyzethe influenceofinstitutionalfactorsoncountries’decisiontoadoptIFRS forSMEs,forbothdevelopedanddevelopingcountries.Theresults showthatcountrieswithoutanationalsetoffinancialaccounting standards,thatpermitorrequiretheuseoffullIFRSforlisted com-paniesandhaveacommonlawlegalsystem,aremorelikelyto adoptIFRSforSMEs.Anexplanationforthiscouldbethatadopting IFRSforSMEsreducesthecostsofdevelopingtheirownfinancial accountingstandards.Beingfamiliarwith,andexperiencedin,the IFRSenvironmentimpliesareductionintransactioncostsaswell beingbetterpreparedtodealwithitscomplexity.Beingpartofa certaingroupofcountriespartiallyexplainsadoptionofIFRSfor SMEs.However,regardingeducationlevel,foreignaid,qualityof thenationalfinancialaccountingstandardsand therelationship betweenaccountingstandardsandtaxrules,thereisnoevidenceof thosefactorsinfluencingthecountryleveldecisiontoadoptIFRSfor SMEs.However,ifeducationlevelismeasuredbytheliteracyrate andthepercentageofprimaryschoolenrolment,weconcludethat

countrieswithalowereducationlevelaremorelikelytoadoptIFRS forSMEs,whichcouldbeexplainedbythelackofqualified accoun-tantsabletodevelopasetoffinancialaccountingstandardsinthe country.Thequalityofnationalfinancialaccountingstandardsand therelationshipbetweenaccountingandtaxareimportantfactors butforfullIFRSadoptionandnotforadoptingIFRSforSMEs.No relationshipbetweenforeignaidandadoptionofIFRSforSMEsis simplyconfirmationofthemixedresultsfoundforfullIFRS adop-tion.PerformingmoretestsweconcludethatEUmembersareless likelytoadoptIFRSforSMEs,becausetheEUhasnotadoptedthe standardsandthereareinconsistenciesbetweentheaccounting directiveandIFRSforSMEs.TheresultsshowthatIFRSforSMEsis mainlyusedindevelopingcountriesandtherearemorecountries thatpermititsuseinsteadofobligingSMEstouseit.

Thesefindingsmaybeofinteresttoaccountingresearchaswell toIASB,bygivingempiricalevidenceofthemaininstitutional fac-torsthat couldberelated toadoptingIFRS forSMEs.Moreover, weconcludethatevenconsideringthattheIASBfinancial account-ingstandardsareanexampleofthebestaccountingpractices,not allcountrieshaveadoptedIFRSforSMEs,whichmayconfirmthat institutionalfactorsareonereasonfornotdoingso(Nobes,1998; Gray&Radebaugh,2002).

Themainlimitationsofthisstudylieinthesampleselection,as thisisdependentontheavailabilityofdataforeveryvariableand thelackofdetailincountryproﬁlesintheIASB.Anotherlimitation isthattheadoptionofIFRSforSMEsisnotthesameasadopting thebestaccountingpracticesandthenumberofcountriesadopting IFRSfor SMEsisconstantlychanging.Anotherwaytostudythe relationshipbetweeninstitutionalfactorsandadoptionofIFRSfor SMEswouldbethroughcasestudies.

Conﬂictofinterests

Theauthorsdeclarenoconﬂictofinterests.

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