What is Legal Enforcement

This chapter aims to investigate whether the mandatory adoption of international financial reporting standards (IFRS) leads to an increase in the accounting quality measured by value relevance and the role of the national institutional factors, namely development of the capital market, legal enforcement, cultural factors, legal systems, and book-tax conformity, in the change in value relevance after IFRS adoption. Towards this end, the price and financial data of listed firms from eleven EU countries for 15 years were examined by panel data methods. The results of this study indicate that mandatory adoption of IFRS leads to an increase in the value relevance of EPS however it has not a significant effect on the value relevance of BVPS. It is also found that, among the national institutional factors, legal enforcement, cultural factors, and book-tax conformity have a significant effect on the change in value relevance after IFRS adoption.