International financial reporting standards and SMEs: the effects on firm rating according to Basel II

The purpose of this paper is to investigate the potential impact of IFRS on SMEs' annual reporting, considering in particular: 1) the evaluation of their financial performance; 2) their creditworthiness and rating, according to Basel II. In the literature, little attention has been paid to the specific influence of IFRS on firm rating. The empirical evidence reported in this paper demonstrates the potentially important effect on the previous two issues. Accordingly, this research raises some strategic issues for individual firms and banks, as well as for the entire economic system. In fact, the current worldwide economic crisis highlights the perils of alternative sets of standards characterised by a different extent of conservatism. The paper describes the results of a multiple-case study, involving 11 firms and an Italian bank. The empirical evidence highlights the differences in these firms' ratings, implementing alternatively the Italian or the IFRS model.