Mandatory IFRS adoption and design innovation

Abstract

We use the mandatory adoption of International Financial Reporting Standards (IFRS) in 2005 as an exogenous change in reporting regulations, examining how it affects design innovation. We find that mandatory IFRS adoption is positively related to firms’ likelihood of winning the iF Product Design Award, which acknowledges excellent product/service designs. We also find that after IFRS adoption, firms attract more international institutional investors who can better monitor and advise on product designs. The impact of this IFRS mandate is more pronounced for firms with expanded international sales, which may benefit more from international markets. Overall, our results enhance our understanding of how mandatory IFRS adoption affects firms’ innovation activities.