As switching from GAAP to IFRS causes changes to accounting quality, predictability, and crash risk, this paper empirically investigates whether firms involved in corporate social responsibility (CSR) performed better under IFRS adoption. Our sample is broken down into three sub-periods (2002-2005, 2010-2012, and 2013-2015) to meet the EU mandate IFRS in 2005 and Taiwan in 2013, respectively. We find mandatory IFRS adoption results in reducing earnings management, improving in forecast accuracy leading to enhanced earnings predictive ability, and mitigating crash risk. Furthermore, CSR firms behave responsibly in constraining earnings management and increasing financial reporting transparency through interaction with IFRS. Following IFRS adoption, crash risk is significantly improved in Over-The-Counter (OTC) companies and the enhanced transparency attracts increased foreign investment to the OTC market. Finally, the results on IFRS and CSR interaction provide reference for global capital markets, especially for major capital markets without mandatory IFRS adoption, e.g., the US and Japan.
In 2005, the European Union mandated adoption of the International Financial Reporting Standards (IFRS), and other countries have since followed suit. The switch from Taiwan Generally Accepted Accounting Principles (TGAAP) to IFRS is a major regulatory accounting reporting change in Taiwan. Previous studies have examined the effect of IFRS adoption on analyst forecasts (Byard et al., 2011; Garrido-Miralles and Sanabria-García, 2014; Pathiranage and Jubb, 2018; Demmer et al., 2019), capital markets (Horton and Serafeim, 2010; Kim and Ryu, 2018; Franzen and Weißenberger, 2018; Castro and Santana, 2018; de Moura and Gupta, 2019; DeFond et al., 2019; Gu et al., 2019), financial reporting (Callao et al., 2007; Hung and Subramanyam, 2007; Trimble, 2018; Chen and Gong, 2019), cost of debt (Moscariello et al., 2014; Downes et al., 2018), earnings management (Amidu and Issahaku, 2019), and information comparability (Yip and Young, 2012; Mita et al., 2018; Liu et al., 2018)1. Corporate social responsibility (CSR) has emerged as an increasingly important topic, and corporations are under mounting pressure to behave responsibly. Furthermore, CSR performance has been found to be related to financial performance (Lin et al., 2009; Surroca et al., 2010; Oyewumi et al., 2018; Lin et al., 2019; Jang et al., 2019; Bhattacharyya and Rahman, 2019; Chahine, et al., 2019; Kao et al., 2018), firm leverage (Sheikh, 2019), and firm market value (Lo and Sheu, 2007; Sheikh, 2018).