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Today more than ever it is crucial to understand the dynamic and intricate institutional landscape that MNEs operate in. However, the drivers of institutional change are still little understood. We focus on a recent fundamental institutional change: the worldwide switch to International Financial Reporting Standards (IFRS). The switch to IFRS was unexpected and not particularly welcomed by MNEs given that most national accounting systems in the pre-IFRS period were considered to be well aligned to the local cultural and environmental characteristics of each country. We test the drivers of this institutional change in a sample of 168 countries between 2002 and 2012 using empirical constructs from policy diffusion theory. Our findings show that the country-level decisions to adopt IFRS are not driven by local determinants but instead by adoption decisions by other, neighbouring countries and influential organizations. We find evidence for competition, learning and emulation as driving forces for the international spread of IFRS. We conclude that the switch to IFRS was not driven by an economic rationale only and diffused beyond the influence and interest of MNEs. Understanding these drivers is essential, because it enables management to anticipate and respond to institutional changes and consequently enhance performance and create competitive advantage.

AND KEYWORDS AbstractThe practice of reporting earnings measures that deviate from generally accepted accounting principles (non-GAAP measures) has received negative attention in the media. Regulators argue

This chapter focuses on the selection of an audit firm by UK initial public offering (IPO) firms. It documents that many IPO firms switch to an audit firm in a different segment (big, midsize, or small), which suggests that IPO firms carefully select an audit firm of a particular quality level before they go public. It examines whether the selection of an auditor by IPO firms is driven by the demand for certification or insurance. The authors find that IPO firms are more likely to choose a high-quality auditor when the uncertainty of the firm’s future prospects is higher and they want to signal quality (certification driven by signaling). In addition, they find that firms with riskier IPO offerings select higher-quality auditors, in line with the insurance hypothesis. They find mixed results for the certification hypotheses when testing for the effect of auditor reputation on initial returns.