The implications of IFRS on the credit market: Evidence from the emerging market

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Sinan Salem Kasim Al-Shaikh ORCID logo, Hussen Amran Naji Al-Refiay ORCID logo, Azher Subhi Abdulhussein ORCID logo

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Banks are usually assessed credit risk based on borrowers’ financial statements to monitor credit risk over the life of the lending contract (Beatty, 2008; Golubeva, 2020). Thus, this research examines the implications of mandatory International Financial Reporting Standards (IFRS) implementation on the rational investment decisions of lenders and borrowers in the emerging market (e.g., the Iraqi credit market). Quantitative data were collected, nearly 137000 credit/loan contracts and 500 debenture contracts of almost 750 individual companies. We separate the dataset into two periods, earlier and later IFRS implementation using interaction variables to extract other economic factors’ impact on loan contract stipulation. Even though enhancing the quality of financial statements is the most rational objective of IFRS adoption and implementation, the results show insignificant improvement. IFRS implementation has a limited effect in enhancing financial statements’ quality during the conversion period. This finding supports the view that economic advantages do not essentially contribute to the application of IFRS but depend on other considerations and the level of disclosure practices.

Keywords: International Financial Reporting Standards (IFRS), Credit Market, Financial Sector, Financial Statements’ Quality

Authors’ individual contribution: Conceptualization — S.S.K.A.-S.; Methodology — S.S.K.A.-S.; Formal Analysis — S.S.K.A.-S. Investigation — S.S.K.A.-S.; Resources — H.A.N.A.-R.; Writing — Original Draft — H.A.N.A.-R.; Writing — Review & Editing — A.S.A.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G10, M41, M210

Received: 09.07.2022
Accepted: 16.01.2023
Published online: 19.01.2023

How to cite this paper: Al-Shaikh, S. S. K., Al-Refiay, H. A. N., & Abdulhussein, A. S. (2023). The implications of IFRS on the credit market: Evidence from the emerging market. Corporate Governance and Organizational Behavior Review, 7(1), 29–43.