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Financial Statement Effects of Adopting International Accounting Standards:
The Case of Greece
Athianos Stergios1
Vazakidis Athanasios2
Dritsakis Nikolaos3
Abstract
This paper investigates the effects of adopting International Accounting Standards
(IAS) on financial statements and their value relevance for a sample of Greek firms
during 2003-2004. By implementing an innovative research design, we make a
comparison between accounting results reported under Greek accounting rules (Greek
GAAP) with those under IAS for the same set of years and document how IAS
adoption changes key financial measures and the value relevance of financial
statement information. Greek accounting system is stakeholder–oriented and usually
viewed as a historical cost accounting model that gives emphasis in income
smoothing while IAS is shareholder-oriented and generally viewed as fair value
accounting model that gives emphasis in balance sheet valuation. According to these
realizations, we find that total assets and book value of equity as well as variability of
book value and net income are significantly higher under IAS than Greek GAAP. In
addition, we find that book value (net income) plays a greater (lesser) valuation role
under IAS than under Greek GAAP. Finally, we find that while the IAS adjustments
to book value are generally value relevant, the adjustments to net income are
generally value irrelevant.
Key words: IAS, IFRS, GAAP, IAS Adoption
1 Lecturer, Department of Accounting, TEI of Serres
PhD Candidate, Department of Applied Informatics, University of Macedonia
156, Egnatia st, P.O Box 1591, 540 06 Thessaloniki – Greece
Tel: +30 23210 49175,
e-mail:as@teiser.gr 2Assistant Professor, Department of Applied Informatics, University of Macedonia
156, Egnatia st, P.O Box 1591, 540 06 Thessaloniki – Greece
Tel: +30 2310 891863,
e-mail:vasak@uom.gr 3 Assistant Professor, Department of Applied Informatics, University of Macedonia
156, Egnatia st, P.O Box 1591, 540 06 Thessaloniki – Greece
Tel: +30 2310 891876,
e-mail:drits@uom.gr
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1. Introduction
In the start of 2005, all listed companies in the European Union are required to
prepare their financial statements in accordance with International Accounting
Standards (IAS). IAS adoption by the European Union is one of the biggest events in
the history of financial reporting and this will make IAS the most widely accepted
financial accounting standard in the world. From the adoption of IAS, there is a direct
need for managers and investors to understand the consequences of IAS, especially in
European countries with stakeholder- oriented accounting systems (such as Germany,
France and Greece). The adoption of IAS is expected to have some important
influences and effects in the reporting of financial statements of companies in
stakeholder-oriented countries because IAS are affected by the shareholder- oriented
Anglo-Saxon accounting principles while national standards in many European
countries have greater contracting orientation and are influenced by considerations of
tax book conformity which is one of the most important obstacles for a country to
adopt IAS.
The objective of this paper is to examine financial statement effects from
adopting IAS in European countries with stakeholder-oriented accounting systems.
Therefore, it is used a sample of 40 Greek firms which adopt IAS for the first time in
2003. More specifically, we try to investigate the effects of IAS adoption on the
financial statements by both examining these changes which is running more quickly
by adopting IAS and studying the consequences of these alteration on key financial
ratios and the value relevance of financial statement information. The IAS adoption
has indirect effects such as higher market liquidity or lower cost of capital and direct
effects such as the changed financial statements and the related footnote disclosures.
It is very important to be mentioned that the investigation will be limited to the
Greek capital markets in order to overcome problems, which will be created by the
comparison of countries with different institutional environments.
Our research design allows us to compare with direct way accounting numbers
prepared under Greek Generally Accepted Accounting Principles (GAAP) with those
under IAS for the same years. We can make this comparison because many Greek
firms restate their financial statements under IAS for the years before the adoption,
therefore providing us with financial statements under both IAS and Greek GAAP for
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the year before the adoption. Moreover, our model controls for cross sectional and
time series differences between IAS and Greek GAAP users. Finally, it is important to
be noted that we make our research for these two years (2003-2004) because the most
Greek companies do not restate their financial statements under IAS prior to 2003.
Our relative value relevance analysis suggests that IAS reduce constantly the
income persistence. The major reason for this reduction is the relatively greater
emphasis on fair values and lesser emphasis on income smoothing. According to this
statement, we can say that book value is more important under IAS than under Greek
GAAP and reversely net income is less important under IAS than under Greek GAAP.
We cannot find any evidence that suggests that IAS improve the relative value
relevance of the book value of equity and net income, either separately or in
combination. Our incremental value relevance analysis suggests that although the IAS
adjustments to book value are generally value relevant, the adjustments to income are
generally value irrelevant with result to deterioration of value relevance. Generally,
value relevance results under IAS are formed according to balance sheet and fair
value and Greek GAAP according to income smoothing. Although it is focused the
fair value accounting instead of income smoothing, which increases the relative
importance of book value against net income, it does not appear very important
improvement of any summary measure, separately or in combination.
We outline that the firms of our sample do not represent a random selection of
Greek firms because they voluntarily adopted IAS before the mandatory IAS adoption
date. For the evaluation of the consequences on our value relevance results, we apply
the two-stage regression procedure that suggested by Heckman (1979). The effects of
this procedure suggest that while the size of enterprise and the financing needs drive
IAS adoption decisions, all our inferences are made to the effects of self- selection
bias.
With our investigation, we contribute to the literature on several dimensions.
First of all, we present evidence on the financial statement effects of the adoption of
IAS in European Union, which is one of the most important events in the history of
the financial reporting. By focusing on Greece, we study a country which have a
major change from the stakeholder- oriented Greek GAAP to the shareholder oriented
IAS. In the past, there were many studies which presented the potential effects from
adopting IAS in economies with stakeholder-oriented accounting systems but the lack
of data prevent these researches from coming to sure conclusions (Joos and Lang,
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1994). In our investigation, with the usage of collected data from annual reports of our
sample firms, we provide evidence concerning the financial statement effects of
adopting IAS in a country with a stakeholder-oriented accounting system such as
Greece.
Last researches, which studied this subject, based on cross-sectional
comparisons across different countries and arrived at the conclusion that the
shareholder-oriented system is more value relevant than the stakeholder-oriented
model (Ali and Hwang, 2000; Ball et al., 2000). However, the literature is not able to
distinguish if this result is driven by the difference in accounting systems or by other
institutional factors such as shareholder protection or market development. Reversely,
our model focuses in a single country and makes comparisons between two alternative
accounting systems for the same years. In this paper we examine accounting
differences under a ceteris paribus condition, which can control for time series and
cross-sectional differences in many country-specific institutional factors.
Finally, we examine the value relevance of IAS such as the prior studies
(Harris and Muller,1999; Ashbaugh and Olsson, 2002), by focusing on the period
(2003-2004) in Greece, which is prior to the mandatory adoption of IAS. In this
period, the core standards already change the accounting recognition and
measurement rules comprising IAS and they are regarded as a “true” presentation of
IAS.
The rest of the paper is as follows. Section 2 describes the tries of European
Union to convergence and harmonization and refers to the value relevance literature.
In section 3, it is presented the sample of Greek firms in which we make our
investigation. Section 4 mentions the methodology, which is followed for the
processing of the data. Section 5 provides the effects of adopting IAS on key
accounting measures and financial ratios, reports the differences in the book value of
equity and the net income across two accounting systems and moreover it analyzes
the results on relative value relevance of Greek GAAP and IAS as well as the
incremental value relevance of IAS book value and net income adjustments. Finally
section concludes.
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2. Literature Review
2.1 The Convergence’s Tries
The expansion of international trade and the accessibility of foreign stock and
debt markets have been a step to increase the discussion about the need for a global
set of accounting standards. Companies, especially multinational enterprises, compete
globally for resources, investors and creditors therefore the adoption of an
international accounting system is an urgent need. It has been claimed that a common
set of practices will provide a “level playing field” for all companies in the world. It
has been made many efforts by a lot of organizations to reduce the existing
differences between accounting systems. In 1973, the International Accounting
Standards Committee (IASC) is the most important organization, which was found for
the compilation of an international set of standards. Its target is to “work generally for
the improvement and harmonization of regulations, accounting standards and
procedures relating to the presentation of financial statements” (IASC, 1995). Its
members claim that the adoption of an international accounting standard improves the
quality of financial statements and increases the degree of comparability (IASC,
1995). From 1973 to 2001, the statements of International Accounting Standards that
issued by the board of the International Accounting Standards Committee are
designated “International Accounting Standards” (IAS). According to Epstein and
Mirza (1997), the IASC’s progress can be seen as taking place in three phases: (1)
1973-1988 when there was the development of a common body of standards; (2)
1989-1995 when the comparability and development project became; and (3) 1995-
current when the core standards project has been applied. In the early development
years, there were the establishment and the codification of a set of international
accounting standards. The comparability project was the result of criticism in relation
to alternatives allowed by the IASC standards and it drove to the revision of ten
standards. Finally, the objective of the core standards project that has been
encouraged by the International Organization of Securities Commissions (IOSCO) is
the development of high-quality standards that they are able to use for cross-border
reporting.
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In recent years, the International Accounting Standards Board (IASB) has
acquired greater legitimacy and stature (Choi et al, 2002; Herz, 2003; Meek and
Thomas, 2004; Roberts et al, 2002). The IASB announced in April 2001 that its
international accounting standards would be designated “International Financial
Reporting Standards” (IFRS). The 2002 GAAP convergence survey which was made
by the six largest accounting firms shows that 95% of the countries which take part in
the research, are committed to either complete or partial convergence of their national
accounting standards with IFRS (BDO et al.,2003). This valid research in 2002 has
focused in the first fifteen members of the EU.
The most important event for the IASB was the European Union (EU)
decision in 2002 to require all EU listed enterprises to prepare consolidated
accounting using IFRS from the beginning of 2005. If we want to make a historical
route in the EU’s decisions about accounting issues, it is very useful to be mentioned
a lot of events from 2000 until today when all listed companies of EU are obliged to
use IAS in the reporting of their financial statement. Specifically, in June 2000, the
European Commission issued a communication (a policy document) which proposed
that European listed enterprises would no longer have a free choice to prepare their
consolidated financial statements in accordance with either national accounting
standards, United States Generally Accepted Accounting Principles (US GAAP) or
IAS. Additionally, this communication was supported by the Economic and Finance
Ministers of the European Union (ECOFIN) at a meeting in July 2000. In February
2001, the European Commission presented draft legislation to the parliament and the
council of ministers acting out the policy that set out in their Communication.
According to EU Financial Reporting Strategy: The Way Forward, all the EU
companies listed on a regulated market (with the participation of banks and other
financial institutions) should be required to prepare consolidated accounts in
accordance with IAS from 2005 at the latest. It is also intended that in the next two
years the requirement for using IAS will be extended to all companies preparing a
public offer prospectus according to the EU’ s Listing Particulars Directive.
Moreover, the Commission suggested the Member States either to require or to allow
their non-listed enterprises to publish their financial statements in accordance with the
same set of standards as those for listed firms.
According to the Commission’s realizations, the financial reporting was
recognized as a key part of an efficient capital market therefore it must be compatible
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with global developments and it must be formed in relation to investors’ needs. It
wanted those accounting standards to meet an internationally recognized financial
reporting framework. In the borders of EU, two such frameworks are used: IAS and
US GAAP.
The Commission recognizes that it is not able to influence the processing of
US GAAP so it considers that IAS is a comprehensive and acknowledged set of
financial reporting rules which can serve the needs of the international business
community. The development of IAS with international prospects and not being
formed according to one business environment, is an additional advantage of IAS. It
is also necessary to be said that the Commission, through its Observer status at the
IASC Board and the steering committees, was able to participate to the IASC’ s
consultations and decisions.
There are some important provisos in the Commission’s proposal such as the
establishment of an “endorsement mechanism” in the European Commission. The
Commission claims that the European Union can not transfer the responsibilities for
setting financial reporting requirements for listed EU firms to a non-governmental
third party. All this process must be exercised oversight and therefore it has proposed
a two-tier mechanism to give legislative validity to IAS in Europe.
Furthermore, the Commission believes that the existence of an appropriate
mechanism is significant before the new standards are adopted by the IASB. For this
reason, it has decided for the establishment of a committee at the EU level, which will
facilate the adoption of IAS in Member States. The endorsement mechanism will
advise the Commission for the possible amendments to the EU Accounting
Directives. In addition to this mechanism, there will be, according to Commission, a
technical level of review, which supported by the private sector. The Commission also
makes a constructive, dedicated and continuous dialogue with the IASB and more
specifically with the IASB’s Standing Interpretations Committee (SIC) when
implementation leading is required.
The EU’ S decision regarding IFRS has remarkable ramifications for the rest
of Europe despite the limited attention by academic researchers. The new EU member
countries after 2002 are obligated to follow the EU’s accounting decisions.
Specifically, the ten new EU members, which joined in 2004, and the three EU
candidate countries followed this direction.
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There are several barriers to the convergence, which were identified by the
GAAP convergence 2002. The most important difficulties for the accounting
convergence are: insufficient guidance for the first-time application of IFRS, the lack
of existence of transactions of specific nature (pensions and other post –retirement
benefits), the tax-driven nature of national accounting systems and the confused
national accounting standards. Many countries were concerned about financial
instruments and about standards, which regard the impairment of assets, income taxes
and employee benefits.
2.2 Harmonization
There were many pressures for the international harmonization of accounting
since the early 1970s when the IASC was established and it started the development
of international stock market and international investment. There are a lot of profits
from the adoption of an international accounting system such as the reduction of
investment risks and cost of capital in the entire world, the lowering of costs as result
of multiple reporting, the elimination of confusion arising from different accounting
measures in countries, the encouragement of international investment and the
allocation of international profits more efficiently (Sharpe, 1998). The issuance of
IASs during the 1970s and the 1980s were recognized as an important step to
international harmonization but in the late 1980s the activities of IASC were
increasingly criticized due to the continuing lack of comparability across country
borders.
An important event was the cooperation between the IASC and the IOSCO in
1988 in order to allow a company to list its securities in any foreign market according
to one specific type of reporting financial statements conforming to IASs (Cairns,
1995). IOSCO has been active in encouraging and promoting the improvement and
quality of IAS for over ten years. Moreover, IASB staff and IOSCO continue to work
together in the next years in order to resolve outstanding issues and identify areas
where IASs are needed. In 1989, the IASC responded with a project in relation to the
comparability of financial statement, which its aim was to eliminate the choices of
other accounting methods in order to increase the credibility and the acceptability of
IASs by the accounting community. The results of the Comparability Project were the
revision of ten IASs.
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The compliance of companies to IASs is a very important subject for the
IASC. It is concerned that although the companies claim compliance, in fact they are
not complying with all the requirements of IASs. The revision of IAS 1 refers that the
companies that state their compliance with IASs, they comply with all IAS
requirements.
A crucial question is that if the adoption of IAS by the companies is able to
harmonize the accounting practices. The reduction of the diversity between
accounting practices after the adoption of IAS improves the comparability of financial
reports prepared from companies from different countries. Harmonization occurs as
more enterprises choose to prepare financial statements using the same accounting
system.
Many studies help the try of IASC and the IASB to facilitate and achieve the
harmonization. These studies focus on either accounting practices of corporations, de
facto; or on national accounting standards, de jure (Tay and Parker, 1990). Early
studies investigate that the harmonization of official national accounting standards
with IASs has a lot of results (Larson and Kenny, 1999). The most recent researches
show that convergence is not complete (Bloomer, 1999; Street and Gray, 1999) while
the increased legitimacy of IASC and now the IASB drives to convergence of national
accounting standards with IAS (Andersen et al.,2000,2001).
It is important to be said that a lot of studies have focused on accounting
harmonization in the EU and in other European countries (Aisbitt & Nobes,2001;
Haller,2002; Roberts et al.,2002). Many researches examine the problems, which are
created by the translation of accounting terminology and concepts into different
European languages (Aisbit & Nobes,2001; Evans,2003). In other studies used annual
reports and indexes in order to measure the European harmonization (Taplin,2004;
Canibano & Mora, 2000). Roberts et al. (2002) show the development of
harmonization in accounting field through EU directives. Haller (2002) mentioned
that the EU’s order to the listed companies to report its consolidated financial
statements according to IFRS and the allowance to the countries to require national
GAAP for individual accounts is a reduction of efficiency and an increase of
complexity. Furthermore, Rahman et al. (2002) claim that the regulatory harmony can
improve the practice harmony. The EU decision to require IFRS adoption by the listed
companies and to allow each country to decide if its national accounting standards are
required for the non-listed companies and for individual accounts of listed enterprises,
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was affected by the ideas of Hoarau (1995). In an investigation of first 15 EU
member countries (Street and Larson ,2004) was found that there is a primary
convergence on the consolidated accounts of companies. It is important to be
mentioned that the major obstacle of the convergence of national accounting
standards with IFRS is the historical linkage of the continental European countries
between their financial reporting and tax laws (Eberhartinger,1999; Haller, 2002;
Jaruga et al.,1996). Finally, Guenther and Hussein (1995) arrived to the following
conclusion: “one of the biggest impediments to uniform international accounting
standards is the requirement in many countries that that financial reporting standards
conform to tax regulations”.
2.3 Value Relevance of Different Accounting Measures
When we use the term “value relevance”, we refer to the ability of the
summary accounting measures to reflect the underlying economic value of the firm
which we measure through contemporaneous stock prices. In the past, researchers
have used either levels (price) or changes (returns) specifications for examining value
relevance issues. According to Kothari and Zimmerman (1995), the price
specification is economically better than the return specification. One more advantage
of the price specification is the possibility to measure the value relevance of both the
stock (book value) and flow (net income or earnings) variables. It is very important
whether there is a trade-off between the value relevance of the book value and the net
income. For instance, IAS possibly improves the value relevance of book values at the
expense of net income. Price specification has a major disadvantage that it is open to
econometric problems, which arising from heteroskedasticity and scale bias (Kothari
and Zimmerman, 1995). For the avoidance of this problem, it is used several
alternative deflators (including an underflated specification).
In accounting literature, there are two different opinions, which are
represented through many studies. More specifically, many studies support the value
relevance of accounting earnings (e.g. Ball and Brown, 1968; Collins and Kothari,
1989; Kothari and Zimmerman, 1995) while others indicate that stock price is
associated with the book value of firm assets, assuming that measures of assets and
liabilities imply the expected results of future activities (e.g. Barth, 1991). All these
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studies use models based either on earnings or book values which are viewed as
alternative approaches to valuation models (e.g. Barth and Landsman, 1995;
Solomons, 1995) especially under the assumption of a perfect market.
Recent studies express their arguments that in more realistic settings with
market imperfections, the accounting systems are able to provide information about
book value and earnings which are additional components of equity value (Chang,
1999; Feltham and Olson,1995; Pennman,1998). According to Burgstahler and
Dichev (1997), who used the concepts of adaptation value and recursion value, the
book value does not provide the net value of the firm’s resources primarily in terms of
historical cost and it does not have any relation with the success of the firm’s
employment of its resources. Oppositely, earnings provide a measure of value, which
count the results of employing firms’ resources. Therefore, it is preferred the
valuation models with many variables to models with one variable.
To make more clearly the analysis about the value relevance, we classify the
value relevance studies into three categories (e.g. Lambert, 1996; Holthausen and
Watts, 2001): (i) relative association studies, (ii) incremental association studies and
(iii) marginal information content studies.
The relative association studies compare the association between stock market
values or returns and alternative bottom-line measures. This type of study examine if
the association of an earnings number which calculated under an accounting standard,
is more highly associated with market values or returns than earnings calculated under
existing GAAP (e.g. Dhaliwal et al, 1999). Other studies examine and compare the
associations of foreign GAAP and US GAAP earnings (e.g. Harris et al., 1994). These
studies usually test for differences in the R2 of regressions with the use of different
bottom line accounting numbers. The accounting number with the larger R2
is
described as being more value relevant.
The incremental association studies examine whether the accounting number
of interest is helpful in explaining value or returns given other specified variables. It is
believed that the accounting number is value relevant if its estimated regression
coefficient is significantly different from zero. Some incremental association studies
make extra assumptions about the relation between accounting numbers and inputs to
a market valuation model in order to predict coefficient values and valuate the
differences in the error with which different accounting numbers measure a valuation
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input variable. For instance, Vencatachalam (1996) examines if the coefficient on the
fair value of derivatives is significantly different from one.
Finally, there are the marginal information content studies that investigate if
the specific accounting number adds to the information set which is available to the
investors. In these researches, it is used event studies to determine if the
announcement of a specific accounting number is associated with value changes. The
price reactions are considered evidence of value relevance. Amir et al (1993) examine
the marginal information content of the Form 20-F reconciliation of foreign and US
GAAP earnings numbers for foreign enterprises by making regression the five-day
abnormal announcement returns on the difference and the change in the difference
between foreign and US GAAP.
In many cases, the value relevance literature theories are not well specified
and we collect them from the papers’ experimental designs. It is appeared that value
relevance studies uses two different theories of accounting and standard setting to
draw inferences: (i) “direct valuation” theory and (ii) “inputs-to equity-valuation”
theory.
In the direct valuation theory, accounting earnings is intended to either
measure, or be combined with, equity market value changes or levels. The book value
of equity under the direct valuation theory is indented to either count, or be associated
with, equity market values. According to this theory, standard setters would be
interested in the results of a study of the relative stock price relation of alternative
accounting earnings or book value of equity measures.
In the inputs–to-equity-valuation theory, the role of accounting is the
providing of information on inputs to valuation models which investors use in valuing
the equity of firms. It is not obvious that standards setters would be interested in the
results of the above relative association study and it is more likely that they are
interested in a study that suggests investors could use an accounting number or a
possible accounting number in their valuation models. That inference requires a
valuation model (valuation theory) and an assumed combination between the
accounting number and a variable, which enters into the valuation model. Value
relevance studies that follow an inputs-to-equity valuation theory possibly perform an
incremental association study.
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3. Sample and Data
Our sample consists of 40 Greek industrial firms that adopted IAS for the first
time during 2003-2004. We begin our investigation period from 2003 because in that
year, many listed Greek companies started to report their financial statements both
under IAS and under Greek GAAP. Moreover, by restricting our sample to Greek
firms adopting IAS from 2003 and later, we are sure that the standards applied by our
IAS sample companies are representative of the international standards and that our
sample IAS adopters are not selectively applying only a subset of the prescribed
international standards. Both of these two conditions ensure that the IAS data, which
we use in our analyses, are representative of the current IAS rules.
In our investigation, we use the following procedures to identify our sample
and collect the necessary restated IAS accounting data. First, we use the site of Athens
Stock Exchange (ASE) in order to gather the observations of each firm for the two
years (2003-2004) with the available data on net income, book value and market
value. Second, we identify the firms, which report their financial statements both
under IAS and under Greek GAAP. These procedures result in a sample of 40 firms.
Third, we use all the available annual reports of the selected 40 firms, that we find
from the Athens Stock Exchange during the years in which we focus our
investigation. We verify the financial statements that are used Greek GAAP and those
that are used IAS by examining notes to financial statements and audit reports.
Therefore, we have financial statements of each company under Greek GAAP and
under IAS for every year. In our sample, there is not any company with negative book
value so the sample remains the same.
Table 1 reports the distribution of our sample firms by industry group.
Specifically, table 1 classifies enterprises based on the industry classification made by
Fama and French (1997). It shows that our sample firms are well allocated across
various industry groups with no group having more than 15% of the sample.
Moreover, the relatively high concentration of our sample firms in banking sector, in
food and in retail industries, reflect their dominance in the Greek economy and the
quality of the firms in these industries which reported their financial statements under
IAS before 1 January 2005. Finally, it is important to be mentioned that our sample
firms are representative of a broad cross section of Greek companies.
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4. Methodology
Our empirical investigation comprises three basic sets of analyses. First, we
present the incidence and the magnitude of key accounting differences between IAS
and Greek GAAP. Second, we examine the results of the IAS adoption on key
accounting measures and financial ratios. Finally, we observe the relative and the
incremental value relevance of IAS and Greek GAAP book values and net income.
We begin our analysis by showing both the incidence and the magnitude of
key accounting differences between Greek GAAP and IAS based on book value and
net income reconciliation adjustments, which our sample firms report in their annual
reports. We find that the translation of financial statements from Greek GAAP to IAS
has widespread and significant changes in fixed tangible assets, depreciation of fixed
tangible assets, valuation of inventories, deferred taxation, foreign currency
translation, brands and trademarks and goodwill. Overall, our analysis underlines that
while Greek GAAP give more emphasis in the prudence principle and income
smoothing (e.g. limited recognition of assets and frequent use of optional loss
provisions), IAS emphasizes fair-values and balance sheet valuation (e.g. use of fair
value for financial instruments and recognition of internally developed intangibles).
In addition, we analyze the effects of adopting IAS on key accounting
measures and financial ratios for our sample of IAS adopters. We find the total assets,
the total liabilities, the book value, the sales and the net income under IAS and under
Greek GAAP in order to examine the significance of the differences between the two
accounting systems. Moreover, we analyze the effects of adopting IAS on key
accounting ratios (return on equity, return on assets, assets turnover, leverage, profit
margin, book to market and earnings to price) in order to find the differences of
adopting IAS in relation to Greek GAAP in accounting measures and common- used
valuation metrics.
The final part of analyses examines the effects of IAS adoption on the value
relevance of book values and net income. We measure value relevance in relation to
the ability of accounting measures to give explanations to stock prices in the same
moment. We compare the relative value relevance of IAS and Greek GAAP and we
examine the incremental value relevance of the results made by IAS and Greek
GAAP. Our relative value relevance analysis can compare the ability of Greek GAAP
versus IAS to reflect economic information which proceeds from stock prices when
only one accounting system is available while our incremental value relevance
15
analysis examines the ability of two accounting systems to reflect information both
one system is available and when two accounting standards are applied
simultaneously.
More specifically, about the final part of our analysis, it has to be mentioned
that when income is neither permanent nor transitory, Ohlson (1995) proposes that the
correct specification is a model in which price is regressed on both book value of
equity and net income. Accordingly, our basic model for examining relative value
relevance is:
(1) 2P 10it ititit eNIaBVaa +++=
where :
Pit : total market value of equity for a firm at year end t.
BVit : book value of equity.
NIit : net income.
Book value and net income are alternatively measured under Greek GAAP
and IAS for the period 2003-2004. We also estimate a book value only version of (1)
which provides a balance sheet approach to valuation (Barth, 1991). This model is
important because it gives us the opportunity to examine the effects of IAS on the
value relevance of the balance sheet alone which is a basic focus of the fair value
approach adopted by IAS. Secondly, we test an income only version of equation (1)
which assumes an income approach to valuation (Black, 1993)
In addition, incremental value relevance tests allow us to examine per se the
value relevance of IAS to book value and net income. Accordingly, we examine the
incremental; value relevance of IAS adjustments. Our model for examining relative
value relevance is:
(2) 222112110 itititititit eNIDIFaNIGGaBVDIFaBVGGaaP +++++=
Where :
Pit= total market value of equity for a firm at year end t.
BVGGit= book value of equity under Greek GAAP
BVDIFit= book value of equity under IAS- book value of equity under Greek GAAP
NIGGit= net income under Greek GAAP
NIDIFit= net income under IAS-net income under Greek GAAP
16
5. Results
5.1 Accounting Differences Between Greek GAAP and IAS for Calculation BV
and NI
5.1.1 Differences on BV of Equity
Panel A of Table 3 reports details of the book value reconciliation adjustments
between Greek GAAP and IAS (in euro million). We make a classification of
adjustments into eight specific categories (categories are identified as those with a
minimum of twenty observations in our sample of 40 Greek firms) and classify all
other adjustments as “other”. We present descriptive statistics for each of the
categories and for the book value under Greek GAAP and IAS.
Panel A of Table 3 documents that book values of equity under IAS are larger
than those under Greek GAAP. Both mean and median book value under IAS
(1313.75 million and 673.05 million respectively) is larger than under Greek GAAP
(1112.71 million and 559.26 million respectively). This is consistent with Greek
GAAP (e.g. limited recognition of assets and frequent use of provisions) producing
more conservative accounting numbers than IAS (e.g. use of fair value for financial
instruments and recognition of internally developed intangibles). Furthermore, there is
larger standard deviation under IAS than under Greek GAAP, which indicates that the
adoption of IAS increases cross-sectional variation. This is consistent with income
smoothing orientation of Greek accounting system and fair value orientation of IAS
(because fair values possibly enlarge differences between firms).
Finally, the panel A reports the major book value reconciliation categories
which influenced negative or positive in calculation of book value across two
accounting systems. These major categories are: valuation of fixed tangible assets,
depreciation of tangible assets, inventories valuation, deferred taxes, foreign currency
translation, brand and trademarks, goodwill and provisions. In Panel A of Table 3,
there are descriptive statistics of all these categories in the calculation of book value.
Our analyses on the accounting differences and reconciliation items find that
switching to IAS results in widespread changes relating to tangible assets, inventories,
deferred taxes and foreign currency translation. Accounting differences in goodwill,
provisions, brand and trademarks are less widespread but they are economically
significant for certain firms. It is very important to be outlined that the fluctuations of
17
these accounting numbers are consistent with the role of every result in each
accounting system.
5.1.2 Differences on NI
Panel B of Table 3 reports details of net income reconciliation adjustments
between Greek GAAP and IAS (in euro million). As in Panel A, Panel B provides the
two sets of descriptive statistics on the reconciliation adjustments, which concern net
income measures under Greek GAAP and IAS. The panel shows that the mean net
income is slightly larger under IAS (122.57 million) than under Greek GAAP (120.69
million) while the median is larger under Greek accounting standards (78.16 million)
than under international accounting standards (67.94 million). In addition, the
standard deviation of net income increases under IAS (from 129.85 to 140.65).
The average effects of the net income reconciliation adjustments are generally
in the same direction as the effects of book value reconciliation items apart from the
adjustments related to provisions and deferred taxes. It must be mentioned that it is
not necessary to change book value and net income in the same direction because
book value captures the cumulative effect of accounting differences and net income
captures the effect during the financial year. For instance, although the change from
tax-based accelerated depreciation methods to straight-line depreciation methods will
increase book value of fixed tangible assets and therefore the book value of equity, it
will decrease (increase) depreciation expense with result to increase (decrease) net
income in the earlier (later) stage of fixed tangible assets’ useful life.
Finally, the panel B reports the major book value reconciliation categories,
which influenced negative or positive in calculation of net income across two
accounting systems. These major categories are the same as those of book value
reconciliation items. In Panel B of Table 3, there are descriptive statistics of these
items, which are used for the calculation of net income. The adoption of IAS has
widespread changes in tangible assets, deferred taxes and provisions. It is also
necessary to be mentioned that the fluctuations of these accounting numbers are
consistent with the role of every result in each accounting system.
18
5.2 Effects of Accounting Differences on Financial Statement Measures and
Ratios
In this part of paper, we document the effects of adopting IAS on key
accounting measures and financial ratios.
In Panel A of Table 4, we present descriptive statistics on key results of
balance sheet (total assets, total liabilities and book value of equity) and income
statement (sales revenue and net income) measures. As concerned as balance sheet,
we find that both total assets and total liabilities are higher under IAS than under
Greek GAAP: the mean total assets under IAS are significantly higher than that under
Greek GAAP at p≤5% while the mean total liabilities under IAS are significant higher
than under Greek GAAP at p≤5%. These evidences imply that IAS recognizes more
asset and liability items on the balance sheet or that it measures them at higher values,
probably due to its fair-value orientation. Moreover, book values of equity are larger
under IAS than under Greek GAAP: the mean (median) book value under IAS is 1314
(673) versus 1113 (559) million under Greek GAAP with different significance at
p≤10% (p≤15%).These results are consistent with the common opinion that the Greek
GAAP is more conservative than IAS. In addition, in the income statement, the sales
revenues are almost the same because the process of the recognition of the revenues
across the two systems is almost same. Finally, both the mean net income under IAS
and under Greek GAAP are significantly same at p≤10% and the median net income
is not significantly different between the two systems at the conventional levels.
Interestingly, Panel A of Table 4 shows that IAS generates greater cross-
sectional variability in both balance sheet and income statement measures.
Particularly, the standard deviation of all accounting measures except for sales is
significantly higher under IAS than under Greek GAAP at p≤1%. The standard
deviation of sales is significantly same across the two different systems at p≤1%.
These results show that IAS has a tendency to magnify the differences across
companies, which could be a consequence of its greater fair-value orientation while
Greek GAAP tends to diminish the differences as a consequence of smoothing
orientation.
In Panel B of Table 4, we present descriptive statistics on key financial ratios.
Firstly, we examine five ratios that rely on financial statement only: (1) return on
equity, ROE, which equals to net income divided by book value of equity; (2) return
on assets, ROA, which equals to net income divided by total assets; (3) assets
19
turnover, ATO, which equals to sales revenue divided by total assets; (4) leverage,
LEV, which equals to total liabilities divided by book value and (5) profit margin,
PM, which equals to net income divided by sales revenue. The results reveal that
ROE, ROA and ATO ratios under IAS are lower than under Greek GAAP (the mean,
median and standard deviation differences in ATO are significant lower at p≤1%
while the mean, median differences in ROE are significant at p≤10% and the standard
deviation differences in ROE and ROA are significant at p≤1%). Furthermore, there is
an on insignificant difference in mean, median and standard deviation leverage while
the mean profit margin is significant the same across the two systems at p≤10%. The
median PM is insignificant lower under IAS than Greek GAAP while the standard
deviation is significant same at p≤1%.
We next examine two financial ratios, which compare accounting-based
valuation of shareholders’ equity and net income to market valuation: (1) book to
market, BM, which equals to book value divided by total market value of equity; (2)
earnings to price ratio, EP, which equals net income divided by total market value of
equity. The mean BM is significantly higher under IAS than under Greek GAAP at
p≤5% while the mean EP is significantly lower under IAS at p≤10%. This decrease in
mean EP ratio is a result of the higher average net income generated by the adoption
of IAS, showing that the IAS effects are different between small and large companies
(EP ratio is like a deflated version of net income and controls size).
To make a conclusion, we can indicate that the adoption of IAS significantly
affects many key accounting measures and financial ratios. According to IAS fair-
value orientation and Greek GAAP’ s conservatism, we find that total assets, total
liabilities and book value are (the most times significantly) larger under IAS than
under Greek GAAP and that the mean net income and its cross-sectional variation are
significantly higher under IAS than under Greek GAAP. Furthermore, we find that the
adoption of IAS by Greek enterprises significantly reduces the average return of
equity and the average assets turnover due to the larger total assets and book value
under IAS than Greek GAAP. Finally, we understand from the table 4 that the
adoption of IAS significantly influences commonly used valuation ratios.
20
5.3 Value Relevance of Greek Accounting Measures and IAS
In this part of our paper, we examine the value relevance of summary
accounting measures-book values and net income- measured alternatively under
Greek GAAP and IAS. It is important to be mentioned that we are not trying to
measure whether the alternative accounting numbers are differentially valued by the
stock market participants, i.e., whether these alternative measures actually
differentially affect investors’ decisions. Rather, we merely use stock prices as
proxies for the fundamental value of the firm and moreover we study the degree to
which the alternative measurements correlate with information used by investors in
setting stock prices (Barth et al, 2001). The previous analysis for the calculation of
book value and net income under Greek GAAP and IAS shows that there are
significant differences between two systems in the calculation of these accounting
measures, therefore it is important to examine the combined value relevance of both
book value and net income.
Firstly, we compare the relative value relevance of book values and net
income alternatively measured under IAS and Greek GAAP. Relative value relevance
tests compare the ability of measurements under each alternative accounting system,
separately, to reflect economic information, which is produced by stock prices. We
also examine the incremental value relevance of the adjustments made by IAS to
Greek GAAP book values and net income. Incremental value relevance tests valuate
the ability of IAS measures to reflect information beyond that in the Greek GAAP
measurements.
5.3.1 Relative Value Relevance
Table 5 reports the results of our relative value relevance analyses. We adopt
the undeflated specification, which is reported in Table 5. We separately report results
of the book-value only, income only and combined book value and income versions
of the (1). For each model we run two set of regressions: one with Greek GAAP
measurements, one with IAS measurements. We also report differences in coefficients
and adjusted R-squares across the Greek GAAP and IAS models. It has to be
mentioned that the number of observations is steady in each regression model (40
Greek firms). It is important that each regression for every model to have identical
observations.
21
We first compare the value relevance of Greek GAAP and IAS book value and
net income. As in prior investigations, we measure value relevance as the explanatory
power of accounting measures for market values. The analyses find little evidence,
which suggest that the value relevance of book value and/or net income improve
under IAS. For the book-value only model, the explanatory power under IAS is higher
than under Greek GAAP and it is significant in conventional levels. For the income
only model, the explanatory power under IAS is lower than under Greek GAAP but
the difference is insignificant in conventional levels. Finally, in the combined book
value and net income model, we find that the explanatory power under IAS is lower
and it is significant in conventional levels. The combined model gives us a more
complete picture of the value relevance of aggregate accounting measures under two
alternative accounting systems. To conclude about the explanatory powers of the IAS
to Greek GAAP, it important to be said that the IAS has higher power in the book
value only model which is significant while IAS has lower power in income only
model (although the difference is insignificant at conventional levels) and in the
combined book value and net income model which the difference is significant.
In addition, we examine the pricing weights (coefficients) on book value
and/or net income. In the book-value only model, the coefficient on book value is
little higher (difference: 0.03) under Greek GAAP and this difference is significant at
p≤1%. The higher coefficients on the Greek accounting system’s book values are
influenced by lower values reported under Greek GAAP, which are result of the
greater conservatism of Greek accounting rules in relation to international standards.
In the income only model, the coefficients on net income are also higher under Greek
GAAP (differnce:1.99) and the difference is significant at p≤1%. The higher
coefficients on the Greek GAAP income are consistent with Greek GAAP income
numbers that are more smoothed and more persistent than IAS numbers. Finally, we
examine the model that combines book value and net income. This model is important
because there can be many trade-offs between the relative valuation roles of book
values and net income. We find that the pattern of coefficients in the combined model
provides two important insights into the differences between Greek GAAP and IAS.
Firstly, the degree to which the net income coefficients are different under the two
systems: the Greek GAAP income is three times larger than IAS income and this
difference is significant at p≤1. Secondly, the book value coefficients under IAS are
larger than under Greek GAAP and the difference is significant. The higher book
22
value and lower net income coefficients under IAS than under Greek accounting rules
is consistent with much lower income persistence under IAS. Sometimes, the lower
income persistence could exclusively create higher book value coefficients
(Ohlson,1995).
5.3.2 Incremental Value Relevance
Table 6 presents results of the incremental value relevance test, representing
the undeflated specification as in Table 5. As in our relative value relevance analyses,
we examine book value only, income only and combined book value and income
versions of equation (2).
In Table 6, the book value only model undoubtedly reveals that the IAS
adjustments to the balance sheet are incrementally relevant: the BVDIF coefficients
(6.11) are all significantly positive at p=3%. However, the income only model,
reveals that the IAS adjustments to net income actually decrease income value
relevance. Specifically, the NIDIF coefficients (-1.00) are significant negative at
p≤1%. Finally, the book value and net income model reveals that the book-value
adjustments are incrementally value relevant (BVDIF coefficient =0.35) but the
difference is insignificant in conventional levels while the income adjustments are
negative (the NIDIF coefficient =-1% is significantly negative at p≤1%).
To summarize, it is important to be said that the book value adjustments in the
book only models are incrementally more value relevant under IAS while the income
adjustments in income only method are more incrementally value irrelevant under
IAS in relation to Greek GAAP. In the combined book value and net income
valuation model, book value (net income) plays a greater (lesser) valuation role under
IAS than under Greek GAAP, which is consistent with IAS’ s greater focus on the
balance sheet and fair values and less emphasis on income smoothing.
6. Conclusion
In this paper, we investigate the financial statement implications of adopting
IAS in Greece, a country with stakeholder-oriented and tax driven accounting system.
By using an advanced research design which compares information under both Greek
GAAP and IAS for the same set of firm-years, we examine the financial statement
changes which were created by the adoption of IAS by Greek firms and document the
23
effects of such adoption on key financial measures, ratios and value relevance of
financial statement information. It is important to be mentioned that our findings are
consistent with Greek GAAP’s conservativeness and income smoothing orientation
and with IAS’s fair value and balance orientation. More specifically, we document
three major findings: (1) total assets and book value of equity as well as variation in
book value and net income are significantly higher under IAS than under Greek
GAAP; (2) book value (net income) plays a greater (lesser) valuation role under IAS
than under Greek GAAP even though there is little evidence that indicates that IAS
the relative value relevance of either book value or net income and (3) the IAS
adjustments to book value are generally value relevant while the IAS adjustments to
net income are generally value irrelevant and they may decrease the value relevance.
Generally, our analyses show a consistent picture of the financial statement
effects of adopting the shareholder-oriented IAS from a stakeholder-oriented
accounting system such as Greek accounting standards. We document that an
important difference is that Greek GAAP gives much emphasis in the prudence
principle and income smoothing while IAS emphasizes fair-values and balance sheet
valuation. This difference is not widely appreciated in the prior studies but it has been
emphasized by practitioners (Ernst and Young, 2004). Although this fair-value
orientation of IAS significantly improves the relative importance of book values and
reduces the importance of income, there is little evidence, which suggest that the
movement from Greek GAAP to IAS increases the value relevance of the summary
measures, book value and net income.
It is important to be mentioned that we use in our research the underflated
specification for the avoidance of econometric problems, which arise from
heteroskedasticity and scale bias. In our analyses, we do not face these problems
because the F-statistic and p-values are in satisfied levels. The p-values have to be up
to 0.05 (5%) for being significant the F-statistic.
Moreover the paper provides timely and relevant insights into the potential
results of the IAS adoption by listed companies of the European Union in 1/1/2005,
which is one of the most important events in the history of the financial reporting.
Although the prior cross-country studies such as Ali and Hwang (2000) and Ball et al
(2000) find that the value relevance of accounting measures is lower in stakeholder-
oriented economies than in shareholder-oriented economies, in our analysis does not
find any significant difference. Our results highlights the importance of institutional
24
factors such as shareholder protection which plays an important role in giving
explanations of cross-country variation in the value relevance of accounting data (Ball
et al, 2003).
We recognize some limitations of our paper. Firstly, our research focuses
exclusively on Greek firms and our results may have not been generalized to other
countries. The focus in a stakeholder-oriented economy such as Greek economy, help
us to better understand the accounting differences between stakeholder-oriented and
shareholder-oriented accounting systems. The results have little value for IAS
adoption in shareholder- oriented countries such as U.K. Secondly, most of our
analyses are low power due to the relatively small sample in relation to typical
market-based analyses. Finally, the progress of IAS is a continuing progress and
IASB has recently issued several rules, which affect recognitions of important
economic activities (e.g IFRS 2: Share-based payment). Although it has more
possibilities that these new rules are according to balance sheet and fair value
orientation of IAS, they may cause additional financial statement changes for IAS
adopters in the future.
25
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31
Appendix 1
Case 1: Excerpts from the Notes to the Group Financial Statements in FOLIE-
FOLIE 2004
Annual Report
Basis of preparation
The consolidated financial statements of FOLIE-FOLIE S.A.(“FOLIE FOLIE Group
financial statements” or “Group financial statements”) at 31 December 2003 have
been drawn up for the first time both under Greek General Accepted Accounting
Principles (GREEK GAAP) and International Accounting Standards (IAS).
The impact of the adoption of IAS for financial reporting
The FOLIE-FOLIE Group financial statements have been prepared and presented as if
they had always been prepared in accordance with IAS and IAS Interpretations. The
adjustment resulting from the conversion to IAS has been treated as an adjustment to
the opening balance of equity.
Equity
Equity under IAS decreases by euro 527 million (-0,85%). The following summary
shows the recognition and measurement differences between Greek GAAP and IAS
and shows the equity under Greek GAAP and IAS at 1st December 2004.
In euro thousands
Equity at 1.1.2004 under Greek GAAP 61,885
Provisions for compensation of staff -1,251
Deferred taxes +1,613
Depreciation of assets -119
Leasing +5
Cancellation of expenses of many-years
depreciation
-2,251
Transfer of recognition of dividends
payable
+5,930
Adjusting of expenses of next period -89
Other adjusting entries +35
Settling of provisions -958
Provisions for audit tax differences -312
Recognition of differences of
consolidation of subsidiaries
-3,129
Equity at 1.1.2004 under IAS 61,358
32
Net income
The net income under IAS is euro 48, 834 million (14.2%) higher than under Greek
GAAP. The net profit for IAS and Greek GAAP is reconciled as follows:
In euro million
Greek GAAP IAS Difference
Sales 194,661 194,626 -35
Cost of goods sold -77,728 -77,641 87
Gross operating
profit
116,933 116,985 52
Other operating
income
+1,207 +1,578 371
Administrative
expenses
-9,878 -9,470 408
Selling expenses -50,882 -50,773 109
Depreciation -4,345 -3,364 981
Incomes before
taxes, financial and
investment results
53,035 54,956 1,921
Interest expenses -3,528 -5,179 -1,651
Income for
participations
+3,250 +13,061 9,811
Net income before
taxes
52,757 62,838 10,081
Taxes -10,358 -14,004 -3,646
Net income 42,399 48,834 6,435
33
TABLE 1
Number of Greek firms using both Greek GAAP and IAS, by industry group
Industry group N %
Retail 3 7.5
Food 4 10
Participations 3 7.5
Computers 2 5
Bank 6 15
Telephony services 1 2.5
Transportation 2 5
Refinery 2 5
Fun 2 5
Wholesale 2 5
Energy 1 2.5
Constructions 2 5
Jewellery construction 1 2.5
Paper 2 5
Drink 2 5
Electric equipment 1 2.5
Furniture construction 1 2.5
Telecommunications 2 5
Cement 1 2.5
Total 40 100
See Fama and French (1997) for the industry classification scheme and related SIC code.
34
TABLE 2
Summary of accounting standards differences between Greek GAAP and IAS
Accounting treatment Valuation of fixed tangible assets
Greek GAAP Their revaluation is considered as value
of possession of assets
IAS Their revaluation is considered as income
or expense
Accounting treatment Depreciation of tangible assets
Greek GAAP Annual depreciation rates are determined
by the legislation for each category of
tangible assets
IAS Appreciation of useful life and calculation
under one of three suggested methods
Accounting treatment Inventories valuation
Greek GAAP Five methods of valuation (FIFO, Weighted
Average, LIFO, Unit Cost, Base Inventory)
IAS Two methods of valuation (FIFO, Weighted
Average)
Accounting treatment Deferred taxation
Greek GAAP No statement
IAS Faces as an expense
Accounting treatment Foreign currency translation
Greek GAAP Arose by loans, considered as intangible assets
and amortized during the period of loan
IAS Increase the cost of asset and amortized during its
useful life
35
Accounting treatment Brand and trademarks
Greek GAAP Evaluation at their cost of acquisition and amortization
in straight line method during useful life
IAS Part of goodwill
Accounting treatment Goodwill
Greek GAAP Entire or partial amortization in no more than 5 years
IAS Prohibitation of amortization and testing for impairment
in 1 year or more frequently
Accounting treatment Cash flow statement
Greek GAAP No obligatory publication of cash flow statement
and use of indirect method
IAS Obligatory publication of cash flow statement and
use of either direct or indirect method
36
TABLE 3
Descriptive statistics on the Book Value and Net Income Reconciliation Adjustments between
Greek GAAP and IAS
MEAN MEDIAN STD. DEV
PANEL A
BV_GREEK GAAP 1112,71 559,26 1267,65
FIXED TANGIBLE ASSETS 145,15 59,34 56,87
DEPRECIATION -57,12 -24,52 12,89
INVENTORIES 82,57 15,98 25,90
DEFERRED TAXES 84,19 72,04 23,80
FOREIGN CURRENCY TRANSLATION -65,20 -23,17 9,03
BRAND-TRADEMARKS -39,35 13,73 12,05
GOODWILL 36,89 12,98 27,91
PROVISIONS 40,66 12,29 35,71
LEASING -26,75 -8,90 8,26
BV_IAS 1313,75 673,05 1480,07
PANEL B
NI_GREEK GAAP 120,69 78,16 129,85
FIXED TANGIBLE ASSETS 14,10 6,78 3,78
DEPRECIATION -3,82 -4,97 1,91
INVENTORIES 2,16 1,56 1,01
DEFFERED TAXES -8,02 -6,66 0,91
FOREIGN CURRENCY TRANSLATION 1,23 0,91 0,31
BRAND-TRADEMARKS 0,45 0,23 0,34
GOODWILL -2,87 -4,67 0,19
PROVISIONS -4,56 -5,57 0,72
LEASING 3,21 2,17 1,63
NI_IAS 122,57 67,94 140,65
1)Variable definitions: BV_Greek GAAP is book value of equity under Greek GAAP; BV_IAS is
book value of equity under IAS; NI_Greek GAAP is net income under Greek GAAP; NI_IAS is net
income under IAS.
2) All numbers are in Euro million.
37
TA
BLE 4
Descripive statistics on key accounting m
easures and financial ratios according to G
reek G
AAP and IAS
Panel A: Accounting Measures (in Euro million)
MEAN
MEDIA
N
STD.DEV
G
REEK
GA
AP
IA
S
G
REEK
GA
AP
IA
S
G
REEK
GA
AP
IA
S
TA
9,5
52.3
3
9,8
71.1
6
2,0
41.9
7
2,4
03.8
4
13,8
85.4
3
14,3
05.0
9
(0.0
3)*
*
(0
.12)
(0
.00)*
**
TL
8,1
72.1
8
8,5
09.9
6
1,1
13.7
9
1,1
00.6
2
13,1
74.8
8
13,6
09.6
3
(0.0
3)*
*
(0
.13)
(0
.00)*
**
BV
1,1
12.7
1
1,3
13.7
5
559.2
6
673.0
5
1,2
67.6
5
1,4
80.0
7
(0.0
7)*
(0.1
5)
(0
.00)*
**
SA
LES
1,6
63.1
0
1,6
79,4
8
868.7
5
818.5
4
1,6
96.3
3
1,6
89.8
7
(0.6
0)
(0
.33)
(0
.00)*
**
NI
120.6
9
122.5
7
78.1
6
67.9
4
129.8
5
140.6
5
(0.0
7)*
(0.3
3)
(0
.01)*
**
38
Panel B: Financial Ratios (in Euro million)
MEAN
MEDIA
N
STD.DEV
GREEK
GAAP
IA
S
GREEK
GAAP
IA
S
GREEK
GAAP
IA
S
RO
E
0.3
1
0.1
6
0.1
0
0.0
7
0.6
1
0.2
4
(0.0
9)*
(0.1
0)*
(0.0
1)*
**
RO
A
0.0
7
0.0
6
0.0
3
0.0
2
0.1
2
0.1
1
(0.1
6)
(1
.00)
(0
.00)*
**
ATO
3.2
9
0.7
8
1.7
5
0.6
9
4.4
4
0.7
9
(0.0
0)*
**
(0
.00)*
**
(0
.00)*
**
LEV
11.4
2
12.2
9
1.6
8
1.3
3
30.1
7
32.4
4
(0.4
5)
(1
.00)
(0
.10)*
PM
0.0
9
0.0
9
0.0
7
0.0
5
0.0
8
0.0
8
(0.0
9)*
(1.0
0)
(0
.00)*
**
BM
0.5
4
0.5
7
0.3
2
0.3
3
0.5
5
0.4
8
(0.0
5)*
*
(0
.50)
(0
.00)*
**
EP
0.0
5
0.0
4
0.0
5
0.0
3
0.0
6
0.0
7
(0
.10)*
(1.0
0)
(0
.00)*
**
1) Variable definitions:
TA
is
tota
l as
sets; TL is
tota
l liab
ilitie
s; B
V is
book v
alue
of eq
uity; SA
LES is
sale
s of re
venue;
NI is
net
inco
me;
RO
E is
retu
rn o
f eq
uity, w
hic
h
equal
s N
I div
ided
by B
V; R
OA
is
retu
rn o
n a
sset
s, w
hic
h e
qual
s N
I div
ided
by T
A; A
TO
is
asse
ts turn
over
, w
hic
h e
qual
s Sal
es
div
ided
by T
A; LEV
is
lever
age,
whic
h
equal
s TL d
ivid
ed b
y B
V; PM
is pro
fit m
argin
, w
hic
h e
qual
s N
I div
ided
by S
ales
; B
M is book to m
arket
, w
hic
h e
qual
BV
div
ided
by tota
l m
arket
val
ue
of eq
uity a
t yea
r end;
EP is ea
rnin
gs to
price
, w
hic
h e
qual
s N
I div
ided
by tota
l m
arket
val
ue
of eq
uity a
t yea
r en
d.
2) The
diffe
rence
in m
ean is bas
ed o
n p
aire
d sam
ple
t-tests. T
he
diffe
rence
in m
edia
n is base
d o
n sig
ned
ran
k tes
ts. The
diffe
rence
in sta
ndar
d d
evia
tion is bas
ed o
n t- te
sts.
Tw
o-tai
led p
-val
ues ar
e in
par
enth
ese
s.
3) *** : A
t signific
ance
lev
el of 1%
** : A
t signific
ance
lev
el of 5%
* : A
t signific
ance
lev
el of 10%
39
TA
BLE 5
Relative value relevance of book value and net income under G
reek G
AAP and IAS
MO
DEL: P
it= a
0+ a
1BV
it+a 2
NI i
t+e i
t
BV only m
odels
NI only m
odels
BV and NI models
Intercept
BV
Adj.R
2%
Intercept
NI
Adj.R
2%
Intercept
BV
NI
Adj.R
2%
GG
577
1.4
2
55.5
%
511
15.4
6
51.6
%
220
0.9
8
10.2
3
71.9
%
(0
.02)*
*
(0.0
0)*
**
(0.0
5)*
*
(0.0
0)*
**
(0.2
9)
(0.0
0)*
**
(0.0
0)*
**
IAS
499
1.3
9
62.4
%
706
13.4
5
41.2
%
455
1.1
9
3.2
8
62.6
%
(0
.03)*
*
(0.0
0)*
**
(0
.01)*
**
(0.0
0)*
**
(0.0
5)*
* (0.0
0)*
** (0
.26)
IAS-G
G
-78
-0.0
3
6.9
%
195
-1.9
9
-10.4
%
235
0.2
1
-6.9
5
-9.3
%
(0
.01)*
**
(0.0
0)*
**
(0.0
1)*
**
(0.0
0)*
**
(1.0
0)
(0.0
0)*
**
(0.0
0)*
**
White Heteroscedasticity Test
F-statistic
F-statistic
F-statistic
GG
0.1
8
0.5
6
0.7
2
(0.8
3)
(0
.20)
(0
.15)
IAS
0.3
6
0.7
0.7
1
(0
.4)
(0
.12)
(0
.14)
1) Variable definitions: P
is to
tal m
arket
val
ue
of eq
uity a
t yea
r-end; B
V is book v
alue
of eq
uity; N
I is n
et inco
me,
inte
rcep
t is c
onstant te
rm.
2) P-v
alues
are
in p
aren
these
s.
3) *** : A
t si
gnific
ance
level
of 1%
** : A
t signific
ance
lev
el of 5%
* : A
t signific
ance
lev
el of 10%
4) A
ll n
um
ber
s ar
e in
euro
million
40
TA
BLE 6
Incremental value relevance of IA
S adjustments to book value and net income
Full m
odel
: P
it= a
0+ a
11BV
GG
it+ a
12BV
DIF
it+ a
21N
IGG
it+a 2
2N
IDIF
it+ e
it
Intercept
BVGG
BVDIF
NIG
G
NID
IF
Adj. R
2 %
White Heteroscedasticity Test
F-statistic
N
BV only m
odel
460
1.0
5
6.1
1
58.5
%
0.4
2
40
(0.0
6)*
(0.0
0)*
**
(0
.03)*
*
(0
.32)
NI only m
odel
0
13.2
1
-1.0
0
100%
0.9
3
40
(1
.00)
(0.0
0)*
**
(0.0
0)*
**
(0
.11)
BV and NI model
0
0.4
9
0.3
5
9.8
1
-1.0
0
0.4
0
40
(1
.00)
(0
.00)*
**
(0.7
4)
(0.0
3)*
*
(0
.00)*
**
100%
(0
.35)
1) Variable definitions: B
V_G
G is
book v
alue
of eq
uity u
nder
GG
; BV
_D
IF e
qual
s book v
alue
of eq
uity u
nder
IA
S m
inus
book v
alue
of eq
uity u
nder
GG
;
NI_
GG
is net
inco
me
under
GG
; N
I_D
IF e
qual
s net
inco
me
under
IA
S m
inus net
inco
me
under
GG
.
2) P-v
alues
are
in p
aren
thes
es.
3) *** : A
t si
gnific
ance
lev
el o
f 1%
** : A
t signific
ance
lev
el o
f 5%
* : A
t signific
ance
lev
el o
f 10%
4) A
ll n
um
ber
s ar
e in
euro
million
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