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 preference shares or alter the specifications of the preference shares in such a way that the classification as equity can be maintained. The main determinant of the decision whether to give these consequences to IAS 32 is the magnitude of the impact of IAS 32 on a firm's debt ratio. We conclude that IFRS does not only lead to a decrease in the use of financial instruments that otherwise would have added to the capital structure diversity, but also changes firms' real capital structure.

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Journal Accounting in Europe
de Jong, A, Rosellón, M, & Verwijmeren, P. (2006). The Economic Consequences of IFRS: The Impact of IAS 32 on Preference Shares in the Netherlands. Accounting in Europe, 3(1), 169–185. doi:10.1080/09638180600920350