The effect of switching regimes on earnings quality for different groups of companies
| Variable | Listed companies | Large private companies | Medium companies | Small companies | Micro companies |
|---|---|---|---|---|---|
| Panel A: observations where there is no change accounting standards during the sample period | |||||
| No. of firm-years | 5,466 | 12,725 | 20,500 | 256,142 | 217,647 |
| V(ΔNI)/V(ΔCF) | 0.3311 | 0.0582 | 0.0719 | 0.2486 | 0.2231 |
| SD, mean of bootstrap distribn | (4.37E-03, 0.3316) | (4.19E-04, 0.0582) | (4.33E-04, 0.0720) | (4.18E-04, 0.2486) | (4.18E-04, 0.2230) |
| Panel A (1): observations for companies which followed IFRS during the sample period | |||||
| No. of firm-years | 5,466 | 651 | 182 | 531 | – |
| V(ΔNI)/V(ΔCF) | 0.3311 | 0.0587 | 0.0806 | 0.1795 | – |
| SD, mean of bootstrap distribn | (4.37E-03, 0.3316) | (1.60E-03, 0.0586) | (4.19E-03, 0.0812) | (8.91E-03, 0.1804) | – |
| Panel A (2): observations for companies which followed UK GAAP during the sample period | |||||
| No. of firm-years | – | 12,074 | 20,318 | 255,611 | 217,647 |
| V(ΔNI)/V(ΔCF) | – | 0.0537 | 0.0718 | 0.2487 | 0.2231 |
| SD, mean of bootstrap distribn | – | (4.53E-04, 0.0540) | (4.24E-04, 0.0718) | (4.05E-04, 0.2486) | (4.18E-04, 0.2230) |
| Panel B: observations for companies which changed accounting standards from UK GAAP to IFRS during the sample period | |||||
| No. of firm-years | 152 | 65 | 37 | 78 | – |
| V(ΔNI)/V(ΔCF) | 0.2891 | 0.0722 | 0.0178 | 0.1605 | – |
| SD, mean of bootstrap distribn | (1.74E-02, 0.2930) | (6.73E-03, 0.0759) | (5.51E-03, 0.0217) | (3.08E-02, 0.1522) | – |
| Panel C: observations for companies which changed accounting standards from IFRS to UK GAAP during the sample period | |||||
| No. of firm-years | – | 32 | 19 | 68 | – |
| V(ΔNI)/V(ΔCF) | – | 0.0277 | 0.0150 | 0.1421 | – |
| SD, mean of bootstrap distribn | – | (1.04E-02, 0.0363) | (2.31E-02, 0.1571) | (5.56E-01, 0.1750) | – |
| Variable | Listed companies | Large private companies | Medium companies | Small companies | Micro companies |
|---|---|---|---|---|---|
| No. of firm-years | 5,466 | 12,725 | 20,500 | 256,142 | 217,647 |
| SD, mean of bootstrap distribn | (4.37E-03, 0.3316) | (4.19E-04, 0.0582) | (4.33E-04, 0.0720) | (4.18E-04, 0.2486) | |
| No. of firm-years | 5,466 | 651 | 182 | 531 | – |
| – | |||||
| SD, mean of bootstrap distribn | (4.37E-03, 0.3316) | (1.60E-03, 0.0586) | (4.19E-03, 0.0812) | (8.91E-03, 0.1804) | – |
| No. of firm-years | – | 12,074 | 20,318 | 255,611 | 217,647 |
| – | |||||
| SD, mean of bootstrap distribn | – | (4.53E-04, 0.0540) | (4.24E-04, 0.0718) | (4.05E-04, 0.2486) | |
| No. of firm-years | 152 | 65 | 37 | 78 | – |
| – | |||||
| SD, mean of bootstrap distribn | (1.74E-02, 0.2930) | (6.73E-03, 0.0759) | (5.51E-03, 0.0217) | (3.08E-02, 0.1522) | – |
| No. of firm-years | – | 32 | 19 | 68 | – |
| – | – | ||||
| SD, mean of bootstrap distribn | – | (1.04E-02, 0.0363) | (2.31E-02, 0.1571) | (5.56E-01, 0.1750) | – |
Notes: V(ΔNI) is the variability of earnings, which is measured by the variance of the residuals from Equations (1) and (4) to capture the smoothness of earnings; V(ΔNI)/V(ΔCF) is the ratio of variability of earnings to the variability of cash flows from operating activities, where the variability of earnings is measured by the variance of the residuals from Equations (1) and (4), and the variability of cash flows is measured by the variance of the residuals from Equations (2) and (5). This ratio is to capture the smoothness of earnings related to the smoothness of cash flows. We report, in parenthesis, the means and standard deviations of the bootstrapped variance of residuals [V(ΔNI)] and the ratio [V(ΔNI)/V(ΔCF)]. The standard deviation of the bootstrap distribution is our estimate of the standard error of the test statistic which approximates to a normal distribution. Variables in panel A are measured during the sample period, 2006-2013. Variables in panels B and C are measured during the year of the switch