Description
Common explanations for the voluntary adoption of International Financial Reporting
Standards (IFRS) have been based on economic efficiency arguments. This paper introduces
new theoretical arguments to explain how institutional pressures influence decisions to
adopt IFRS voluntarily. Through recourse to an institutional theory context, we combine
the analytical framework proposed by Oliver (1991) with the concept of institutional logics,
and apply this framework to the financial accounting field for the first time. This combined
model shows how multiple forms of rationality constrain company responses to
pressures to adopt a new accounting regime.
We find that companies in a code law country are willing to change from a code-law
institutional logic to a common-law institutional logic if they consider such a change will
have positive overall benefits to them. Companies assess the net benefits of change after
considering the legitimacy they achieve with IFRS, the consistency of IFRS with their goals
and institutional context, and the loss of autonomy they believe they are likely to sustain
from adopting IFRS. Contrary to predictions in earlier formulations of institutional theory,
we find that the acquiescence of companies in adopting IFRS is not a blind response to
institutional demands, but is largely predictable by virtue of the inherent nature and
importance of such institutional pressures to them.
doc_393929014.pdf
Common explanations for the voluntary adoption of International Financial Reporting
Standards (IFRS) have been based on economic efficiency arguments. This paper introduces
new theoretical arguments to explain how institutional pressures influence decisions to
adopt IFRS voluntarily. Through recourse to an institutional theory context, we combine
the analytical framework proposed by Oliver (1991) with the concept of institutional logics,
and apply this framework to the financial accounting field for the first time. This combined
model shows how multiple forms of rationality constrain company responses to
pressures to adopt a new accounting regime.
We find that companies in a code law country are willing to change from a code-law
institutional logic to a common-law institutional logic if they consider such a change will
have positive overall benefits to them. Companies assess the net benefits of change after
considering the legitimacy they achieve with IFRS, the consistency of IFRS with their goals
and institutional context, and the loss of autonomy they believe they are likely to sustain
from adopting IFRS. Contrary to predictions in earlier formulations of institutional theory,
we find that the acquiescence of companies in adopting IFRS is not a blind response to
institutional demands, but is largely predictable by virtue of the inherent nature and
importance of such institutional pressures to them.
doc_393929014.pdf