The Economic Consequences of IFRS: The Impact of IAS 32 on Preference Shares in the Netherlands

Abstract

The consequences of international accounting standards are likely to reach beyond the impact on financial statements. This paper demonstrates one of the economic implications of international standards. We focus on the impact of the International Financial Reporting Standards (IFRS) regulation on preference shares (IAS 32) in the Netherlands. IAS 32 causes most preference shares to lose their classification as equity and these shares will hence be classified as liabilities. We document that for Dutch firms with preferred stock outstanding, the reclassification will on average increase the reported debt ratio by 35%. We find that 71% of the firms that are affected by IAS 32 buy back their pre..