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Abstract
In this paper, we examine the motivations for preparers in Greek non-listed companies to adopt International Financial Reporting Standards (IFRS). Previous literature has focused on listed companies and assessed the effect of IFRS on market efficiency to justify its adoption. Using data from a cross-sectional survey and from interviews with senior managers, our analysis indicates that the motivations to adopt IFRS in Greece are not primarily related to the technical competence of the standards. We draw insights from literature on institutional theory and hegemony based on the Selections from the Prison Notebooks of Gramsci, and show that the decision to comply with IFRS can also be motivated by coercive and hegemonic pressures, which are exerted by powerful institutional constituents as they interact with organisations’ strategic interests at the international and national level. The adoption of IFRS is driven predominantly by the pressures exerted by parent companies on their subsidiaries and by the legal requirements of the state, but also through borrowing and debt-contracting requirements as enforced by civil society actors, such as financial institutions. This mobilisation of power plays a pivotal role in supporting the establishment of IFRS among non-listed companies.
Notes
1 According to the European Commission, companies are categorised as small, medium, or large based on criteria related to the amount of turnover and assets, and the number of employees. Small and Medium-sized Enterprises (SMEs) are all enterprises employing less than 250 employees. Within SMEs, the following size-classes are distinguished: micro-sized enterprises, having a headcount of less than ten and a turnover or balance sheet total of not more than €2 million; small-sized enterprises having a headcount of less than 50 and a turnover or balance sheet total of not more than €10 million; and medium-sized enterprises having less than 250 employees and a turnover of not more than €50 million, or a balance sheet total of not more than €43 million (CitationEC, 2003).
2 The main mechanisms of institutional (isomorphic) change and the motivations to adopt new structures and behaviours have three categories: coercive, occurring when external powerful parties, such as the state and other constituents upon which an organisation is dependent, force the adoption of an organisational practice or element, usually by using sanctions; mimetic, occurring when an organisation attempts to imitate a more successful referent organisation or improve upon the practice of other organisations; normative, occurring when an organisation is motivated to respect social obligations and participates in professional organisations to provide a cognitive base, diffuse shared organisational practices, and legitimise its activities (CitationDiMaggio & Powell, 1983). Even though these mechanisms are analytically distinct, in practice they may overlap as carriers of institutional effects.
3 CitationSuchman (1995, p. 574) defined legitimacy broadly as ‘a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions’, and identified the various audiences which confer it. However, rather than trying to measure legitimacy this study aims at focusing on the organisational practices that are affected by institutional processes and the elements that confer legitimacy.
4 An institutional work perspective has placed at the forefront the organisational actors (agency) who, even though structurally conditioned, are involved in creating, sustaining, and challenging institutions.
5 The term civil society is used commonly in current academic literature to define a sector of voluntary organisations and NGOs. In Gramsci’s terms, however, civil society is used to define the public sphere, other than the political society, which includes private institutions such as trade unions, political parties, and the church, that influence and rule over people’s beliefs and actions mainly through consent.
6 Apart from the GGAP, accounting regulation includes and is influenced by the Law No. 2190/1920 on Limited Companies, the Art. 29 of the Commercial Code (CitationGovernment Gazette, 1963), and other relevant laws that determine the preparation of financial statements, as well as the European Directives regarding corporate law and legislative decrees.
7 The regulation regarding the adoption of IFRS by subsidiaries varies significantly across different EU jurisdictions (CitationPWC, 2014). The requirement of IFRS adoption by subsidiaries of listed companies and financial institutions that, in total, represent more than 5% of the consolidated turnover, or the consolidated assets, or the consolidated results applied only in the case of Greece.
8 According to the Law N. 3604/2007, Art. 52, companies that have total assets less than €2.5 million, revenues less than €5 million, and less than 50 employees on average per financial year are exempted from audit (CitationGovernment Gazette, 2007b).
9 In order to identify the NLCs that used IFRS, we screened all NLCs on the Earnings Before Interest Tax Depreciation and Amortisation (EBITDA) figure. According to the common practice in Greece, as confirmed by professional and chartered accountants, the EBITDA figure is not reported under GGAP. Therefore, every company that contained the EBITDA figure in its income statement was considered to have used IFRS for the preparation of its financial statements.
10 For the calculation of the sample size, Cochran’s (1977) random sampling techniques were used. Assuming i) confidence level of 95%, ii) margin of error of 5% based on literature’s guidance for categorical data (see CitationKrejcie & Morgan, 1970), and iii) population’s standard deviation of 0.5, as per CitationBartlett, Kotrlik and Higgins (2001) recommendation for categorical variables when a population’s standard deviation is unknown, the required sample size is equal to 384 cases. However, since the required sample size of the 384 cases exceeds 5% of the population’s total, the required sample size corrected for population size, using Cochran’s (1977) correction formula, is equal to 273 cases. In addition, assuming a response rate of 25%, since ‘response rates of 25% are common in accounting research’ (CitationSmith, 2003), a minimum drawn sample size of 1092 cases should have been be used. Following CitationCochran’s (1977) procedures for sample size determination, the estimated minimum drawn sample size of 1092 cases is above the population size, i.e. 974 firms. Therefore, a census of the population was carried out instead of random sample selection.
11 The response rate also converges to the average response rate accomplished by email surveys (see CitationDoving & Gooderham, 2008) and falls within the range of response rates achieved by surveys that target senior management and high-level executives (see CitationDeTienne & Koberg, 2002; CitationNeck, Meyer, Cohen & Corbett, 2004).
12 Chi-square tests, ANOVA, and Kruskal-Wallis tests, which were conducted to test for the presence of bias among respondents, confirmed that the responses among the three types of job-titled respondents do not differ. Furthermore, the non-response error test was conducted using CitationArmstrong and Overton’s (1977) recommendations. The chi-square tests for categorical variables, as well as t-tests and Mann-Whitney U tests for scaled variables, indicate no statistically significant differences between early and late respondents.
13 The classification of companies is based on the classical three-sector categorisation of economies based on activity, that includes: the primary sector which relates to agriculture, forestry and fishing activities; the secondary sector which relates to the production of manufactured goods; and the tertiary sector related to the services sector (CitationCentral Bank of Greece, 2012). In Greece, as in all other EU countries, the tertiary (service) is the largest sector of the economy (70% of total workforce), followed by the secondary (18% of total workforce), while the primary sector contributes the least to the Greek economy (12% of total workforce).
14 We recognise that during our main evidence collection period (2009–2011) the public debate on the potential role of IFRS in the financial crisis may have facilitated a particular context for evaluations of IFRS (Barth & Landsman, Citation2010; Laux & Leuz, Citation2009), but we do not consider this is significant for the main arguments in the current paper. The great majority of the NLCs under investigation adopted IFRS prior to 2008 and the beginning of the recession, and the variety of arguments and issues posed by the interviewees and the survey respondents did not differ significantly during the two-year period over which the study took place. This mitigates potential bias and limitations related to the generalisability of the evidence and insights, which can benefit researchers that study financial reporting decisions of companies under similar jurisdictional environments.
15 The factor used to determine the size of the companies is based on the CitationEuropean Commission’s (2003) staff headcount criterion that defines SMEs.
16 For anonymity the interviewees were allocated an MA identity. See section A.2 of the Appendix A.
17 In Greece, the adoption of IFRS is legally required for subsidiaries of listed companies that represent more than 5% of the consolidated turnover or the consolidated assets or the consolidated results. Due to the difficulty to obtain financial information for NLCs, we were not able to identify the subsidiaries that fall under this category in our sample.
18 The Greek state permitted early (i.e. pre-2005) adoption of IFRS.
19 The Code of Books and Records (CBR) is the legislation that regulates bookkeeping for tax purposes of unincorporated businesses and other forms of business enterprises in Greece (P.D. 186/1992 and Ν.3522/2006) (CitationGovernment Gazette, 2006).
20 Based on the survey questionnaire these include: i) requirement by the parent company, ii) legal obligation under the law Ν3429/2005 for POEs, and iii) planning to get listed on the Athens Stock Exchange.
21 Based on the survey questionnaire these include: i) improvement of access to lending institutions, ii) attraction of foreign investors, iii) merger with a listed company, iv) improvement of company’s creditworthiness, v) preparation of comparable accounting information with foreign partners, vi) improvement of company’s image and legitimacy, vii) improvement of quality of financial information, and viii) enhancement of financial results.