Relative Importance of Accounting Standards and National Regulatory Frameworks on Opportunistic Asset Sales Decisions

We use a sample of UK-listed firms reporting under IFRS and US listed firms reporting under US GAAP, and a second sample of UK firms cross-listed in the US and reporting under IFRS matched with US domestic firms reporting under US GAAP, to explore differences in earnings management through asset sales between IFRS and US GAAP reporters. In the first sample, we find that both US and UK firms use asset sales to manage earnings upward at the benchmark of zero earnings, but only UK companies use asset sales to smooth income. Our second sample shows a consistent and similar use of asset sales for income smoothing purposes for companies reporting under IFRS and US GAAP that are subject to the same (US) regulatory environment. Our results suggest that the regulatory environment rather than accounting standards is pivotal in the decision to use asset sales to manage earnings.