Explaining the Determinants of International Financial Reporting Standard (IFRS) Disclosure: Evidence from Latin American Countries

Abstract

This study investigates the firm- and country-level determinants that influence the extent of financial disclosure under International Financial Reporting Standards (IFRS) in selected Latin American Organisation for Economic Co-operation and Development (OECD) members or countries in the accession process in the period under analysis. Using a sample of 168 publicly listed companies from Argentina, Chile, Colombia, Mexico, and Peru, we construct a self-developed disclosure index based on compliance with International Accounting Standards IAS 16 (Property, Plant and Equipment) and IAS 2 (Inventories). These standards were selected due to their relevance across a broad range of sectors in emerging markets. Drawing on agency theory, stakeholder theory, institutional theory, signaling theory, and legitimacy theory, we examine how internal firm characteristics, macroeconomic performance, and institutional quality impact disclosure practices. Our empirical findings show that firm size, leverage, Gross Domestic Product (GDP) growth, and shareholder protection have a positive and statistically significant influence on the level of IFRS disclosure. However, not all institutional variables are equally effective, highlighting the complex interplay between regulatory environments and corporate reporting behavior in developing countries. The study contributes to the ongoing debate on the applicability and effectiveness of IFRS in emerging economies by offering evidence from underexplored Latin American markets and emphasizing the need for context-specific policy and regulatory interventions.

1. Introduction

In recent decades, financial crises and high-profile corporate scandals have prompted regulatory reforms aimed at promoting the standardization and harmonization of accounting information, thereby enhancing transparency and comparability (Edeigba & Amenkhienan, 2017). Within this context, the adoption of International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) has become particularly important for developing economies seeking to bolster credibility and attract foreign capital. However, the effectiveness of these standards in such contexts remains a subject of debate: while some studies point to institutional weaknesses as significant barriers to successful implementation (Carmona & Trombetta, 2008), others highlight the positive impact of IFRS on transparency and integration into global capital markets.

The literature explains this phenomenon through theoretical lenses, including institutional theory, agency theory, stakeholder theory, signaling theory, and legitimacy theory, all of which offer insights into the underlying corporate incentives for disclosure under IFRS (Ab Abonwara et al., 2021; Bessler et al., 2023; Białek-Jaworska & Matusiewicz, 2015). However, a research gap remains at the firm level in emerging economies, despite the significant demands that IFRS adoption places on companies’ internal resources (Leuz & Wysocki, 2016). This gap is particularly relevant in Latin American OECD member countries, where institutional conditions are both heterogeneous and dynamic (Santana Santos et al., 2014).

Building on the research gap identified, this study focuses on listed firms in five Latin American countries that are OECD members or in the accession process—Argentina, Chile, Colombia, Mexico, and Peru—with the aim of addressing four central research questions: (i) Does the mandatory adoption of IFRS lead to increased levels of financial disclosure? (ii) Does a country’s level of institutional development facilitate the effective implementation of IFRS? (iii) Does the presence of corporate governance structures encourage IFRS adoption? and (iv) Does the involvement of external auditing promote higher quality and more extensive application of IFRS? To address these questions, the analysis centers on disclosure practices related to IAS 16 (Property, Plant, and Equipment) and IAS 2 (Inventories)—two standards broadly applicable to industrial and manufacturing firms. This focus ensures the relevance and comparability of the analysis, as 86% of the companies in the sample operate within these sectors and are thus subject to the application of both standards in their annual financial statements.

IAS 16 and IAS 2 are viewed as strategic assets, as their application reflects key principles embedded in established theoretical frameworks. IAS 16, in particular, is linked to agency theory, signaling theory, and legitimacy theory, given that fixed assets are long-term, strategic in nature, and often serve as indicators of organizational stability and legitimacy. The effective management and transparent disclosure of fixed assets can foster trust among market participants and stakeholders—especially within the agency relationship between owners and managers—by signaling financial strength and long-term commitment. On the other hand, IAS2 is strongly connected to agency theory, stakeholder theory, and signaling theory, as inventories are closely related to liquidity, operational efficiency, and interactions with key stakeholders—especially in emerging markets. Moreover, within the Latin American–OECD context, both standards align with institutional theory, as their adoption is influenced by coercive pressures from international regulatory frameworks and the imperative to legitimize accounting practices before global investors.

The study employs disclosure indices that are differentiated by their scope—general versus required disclosures—and evaluates the extent to which firms comply with both context-dependent and mandatory reporting requirements. To assess both the overall level of disclosure and the changes in disclosure behavior over time, the analysis compares data from the two years immediately preceding and following IFRS adoption. The timing of adoption varies across the countries in the sample: Chile adopted IFRS in 2009, followed by Peru in 2011, Mexico and Argentina in 2012, and Colombia in 2015. This approach enables a more nuanced understanding of the effects of IFRS implementation across varying institutional contexts.

Accordingly, this study contributes to the literature by providing firm-level evidence on financial disclosure within the broader context of IFRS adoption in emerging Latin American economies. It highlights the role of both institutional factors and firm-specific characteristics in shaping disclosure outcomes and enhances our understanding of how international standards are applied in practice across diverse regulatory environments.

The results reveal that firm size, leverage, macroeconomic growth, and shareholder protection are positively associated with disclosure levels under IFRS, while not all institutional variables exhibit a significant effect—highlighting the complexity of disclosure dynamics in emerging markets.

The remainder of the paper is organized as follows: Section 2 shows the context of IFRS adoption in Latin America. Section 3 provides the literature review and develops the study’s hypotheses. Section 4 outlines the methodology. Section 5 reports the empirical findings, followed by the discussion in Section 6 and the conclusions in Section 7. Finally, Section 8 highlights the limitations of the study and avenues for future research.

2. Context of IFRS in Latin America

The adoption of IFRS by countries belonging to the OECD reflects the need to enhance the quality, comparability, and transparency of financial information in increasingly globalized capital markets (Leuz & Wysocki, 2016). Pressure from international organizations such as the World Bank (WB), the International Monetary Fund (IMF), and the OECD itself has led developing countries to implement and standardize IFRS, with the aim of fostering economic development and global integration by increasing international investors’ confidence in firms operating in less developed capital markets (Elhamma, 2024; Graham & Annisette, 2012; Irvine, 2008; Pricope, 2016). These global processes, however, have largely evolved independently of the dynamics of domestic markets. Various stakeholders have criticized the idea of a unified accounting system that serves the needs of firms and investors across varying levels of economic development and within diverse cultural, social, and religious contexts, due to its potentially adverse effects on developing economies with weak institutional frameworks (Graham & Annisette, 2012; Irvine, 2008; Joshi et al., 2016).

These challenges are reflected in the level of IFRS implementation across Latin American countries. The IFRS Foundation reports that 70% (26 out of 37) of jurisdictions in the Americas region have adopted IFRS, making it the region with the lowest adoption rate globally (International Financial Reporting Standards Foundation, 2025). Compared to the adoption process in European countries, IFRS implementation in Latin America occurred at a later stage. Venezuela and Chile were the first countries in the region to adopt IFRS, in 2008 and 2009, respectively, followed by a large number of countries between 2010 and 2012. Colombia and Costa Rica were the most recent adopters, implementing the standards in 2015 and 2018, respectively.

The adoption of IFRS has not been a smooth process in Latin America (LA), primarily due to the institutional weaknesses present in many countries in the region. In these contexts, there have been no substantial changes in accounting practices, as they remain governed by rigid, rule-based standards rather than flexible, principle-based frameworks. This rigidity has hindered accounting professionals from undertaking a structural transition grounded in IFRS. Furthermore, there is a lack of clear regulatory frameworks for investor protection (Carneiro et al., 2017; De Moura & Gupta, 2019) and, from a capacity-building perspective, there is a shortage of both accounting and non-accounting professionals equipped to lead the transition process (Carneiro et al., 2017).

Chile and Mexico are among the countries that have most effectively adapted IFRS to their information systems, largely due to their relatively stronger economic development. In Mexico, its geographic proximity and strong trade ties with the United States have driven the advancement of its accounting and control systems. In contrast, in many other Latin American countries, IFRS adoption has been largely ceremonial, with little to no structural change in the design and functioning of financial reporting systems (Mir & Rahaman, 2005). Moreover, given the structure of the business sector in these countries—dominated by SMEs—simplified versions of IFRS have been developed. This has created challenges related to data disaggregation, full application of the standards, and the comparability of financial information (Edeigba & Amenkhienan, 2017).

The academic literature on the adoption of IFRS in LA has largely focused on countries such as Argentina, Brazil, Chile, Mexico, Peru (Akisik et al., 2014; De Morais et al., 2019; De Moura & Gupta, 2019; López et al., 2020; Melgarejo, 2024; Mongrut & Winkelried, 2019; Muñoz Mendoza et al., 2022; Paulo et al., 2014; Rodríguez García et al., 2017), and Colombia (Mongrut & Winkelried, 2019). The findings in this literature remain inconclusive, reflecting both the promise and the limitations of IFRS within diverse institutional settings.

On the one hand, several studies highlight positive outcomes of IFRS adoption, including reduced costs of debt and equity due to lower information asymmetry (De Moura et al., 2020); increased value relevance of accounting figures, enhancing the alignment between reported financial data and market valuations (Rodríguez García et al., 2017); improvements in earnings quality and reductions in earnings manipulation, facilitated by greater transparency and consistency in financial reporting (De Morais et al., 2019; De Moura & Gupta, 2019; Muñoz Mendoza et al., 2022; Paulo et al., 2014; Rodríguez García et al., 2017); and enhanced comparability of financial statements across jurisdictions (López et al., 2020).

On the other hand, critical voices in literature point to significant limitations. Some argue that the mere adoption of IFRS does not guarantee improvements in reporting quality in the absence of supportive institutional conditions (Mongrut & Winkelried, 2019). Others find evidence of declining reporting quality among multinational corporations’ post-adoption (Melgarejo, 2024). In evaluating the effects of IFRS implementation across countries participating in the Latin American Accounting Standards Group (GLASS), Carneiro et al. (2017) report a negative impact on the harmonization process, citing weak institutional frameworks, insufficient professional training, and inadequate enforcement mechanisms. Similarly, Akisik et al. (2014) contend that the costs of IFRS adoption may surpass its benefits, particularly given the disconnect between IFRS principles and the economic and regulatory realities of many Latin American nations.

In this context, Malaquias and Zambra (2018), in their analysis of financial information disclosure in firms from Brazil, Chile, Mexico, and Peru, found that the level of disclosure regarding financial instruments varies by country and firm size. These differences are attributed to accountants’ perceptions of the standards’ requirements as complex, which leads to inconsistencies in their implementation.

3. Literature Review and Study Hypothesis

3.1. Theoretical Framework

Numerous theories have been employed to explain the disclosure of both mandatory and voluntary financial information. Gaining a comprehensive understanding of the motivations behind corporate disclosure is of particular importance, given the pivotal role that information plays as a signaling mechanism toward diverse stakeholder groups.

From a theoretical perspective, Frynas and Yamahaki (2016) propose a multi-theoretical framework to elucidate the disclosure of Corporate Social Responsibility (CSR) information. Building upon their contributions, this study critically examines the applicability of various theoretical perspectives in identifying the determinants of information disclosure in compliance with the IFRS. This analysis is particularly significant given the profound impact of IFRS-mandated disclosures, not only on capital market participants but also on a broad spectrum of stakeholders. Furthermore, the study explores the institutional prerequisites essential for the effective functioning of corporate information systems (see Figure 1).

Drawing upon the framework proposed by Frynas and Yamahaki (2016), the preceding figure outlines a theoretical model that facilitates the explanation of financial information disclosure under the IFRS through the integration of multiple theoretical perspectives, including legitimacy theory, stakeholder theory, institutional theory, agency theory, and signaling theory. In this context, the determinants of the mandatory disclosure index are expected to be consistent with these theoretical frameworks.

Legitimacy theory emphasizes the strategic importance of aligning organizational behavior with societal norms and expectations to secure social acceptance and long-term viability. Firms disclose financial and non-financial information to demonstrate conformity with institutional standards and mitigate perceived risks, particularly during periods of crisis or regulatory change. Stakeholder theory complements this view by asserting that firms operate within a network of relationships involving individuals and groups affected by their actions and therefore must incorporate stakeholder interests into their decision-making processes.

Institutional theory further enriches this understanding by highlighting the role of formal and informal institutions—such as legal frameworks, cultural norms, and organizational routines—in shaping disclosure practices. The strength and maturity of a country’s institutional architecture is significantly associated with the adoption and implementation of international standards like IFRS, with robust institutions fostering transparency and effective market signaling.

Agency theory focuses on the principal–agent relationship between shareholders and managers, where information disclosure serves as a mechanism to reduce asymmetry, mitigate agency costs, and enhance accountability. Effective governance structures, including independent boards and audit committees, are essential for monitoring managerial behavior and ensuring that disclosures reflect the interests of shareholders. Signaling theory adds a market-oriented dimension by framing disclosure as a strategic tool through which firms communicate their transparency, governance quality, and long-term viability. High-quality disclosure sends positive signals that reduce uncertainty and foster investor confidence, while omissions or poor-quality reporting may be interpreted as negative signals, potentially leading to reputational damage and increased capital costs.

These theoretical perspectives suggest that beyond managerial intent or stakeholder pressures, the broader institutional and governance environment significantly shapes firms’ disclosure behavior. In particular, robust institutional frameworks and effective governance structures can enhance compliance with IFRS requirements, mitigate agency conflicts, and improve the credibility and comparability of financial information across jurisdictions. Together, these theoretical frameworks provide a multidimensional foundation for analyzing the motivations and mechanisms underlying corporate disclosure in diverse institutional and market contexts.

3.2. Measurement of Disclosure Indices

Previous research has proposed the use of both weighted and unweighted indices to evaluate the extent of information disclosure (Abasi et al., 2022; Santana Santos et al., 2014). These indices may be developed through researcher-designed instruments (self-constructed checklists) or derived from standardized checklists published by auditing firms. Both approaches are considered methodologically acceptable, provided that the instruments’ validity and reliability can be demonstrated (Tsalavoutas et al., 2020).

A common challenge in the literature is that many studies assess disclosure across a wide range of standards, which can complicate the construction of an index. This is primarily due to the heterogeneous nature of disclosure requirements across different financial statement components. As a result, it becomes difficult to identify which standards entail higher or lower levels of compliance or impose varying degrees of disclosure-related costs (Tsalavoutas et al., 2020).

To address these limitations, the present study focuses specifically on two International Accounting Standards: IAS 16 (Property, Plant, and Equipment) and IAS 2 (Inventories). These standards have been selected due to their widespread applicability across firms and their classification among the most disclosure-intensive and costly to implement. Furthermore, a customized checklist was developed for this study, with its validity and reliability assessed based on the materiality and relevance of the disclosure items included.

3.3. Determinants of Mandatory Information Disclosure

Previous studies have employed a range of determinants to evaluate the impact of IFRS adoption on the mandatory financial information disclosed by firms. According to Archambault and Archambault (2003), the decision to disclose mandatory information is associated with a combination of cultural, political, economic, and corporate factors. These factors interact to shape a company’s response regarding both the quantity and quality of information disclosed. Based on this, the literature classifies the determinants of financial disclosure into two levels: country-level and firm-level (Agana et al., 2025; N. G. Nguyen & Nguyen, 2023; Osinubi, 2020).

At the national level, several factors help explain variations in disclosure practices. In their theoretical analysis, N. G. Nguyen and Nguyen (2023) emphasized the relevance of institutional theory—particularly its focus on country-specific characteristics—in studies examining financial disclosure following IFRS adoption. This is largely due to the influence of legal systems and both formal and informal institutions on corporate behavior. Furthermore, institutional pressures are observed to encourage firms to emulate the practices of more successful competitors (N. G. Nguyen & Nguyen, 2023).

The mandatory adoption of IFRS is associated with enhanced quality, volume, and granularity of financial information disclosed to stakeholders (Li et al., 2021). Furthermore, IFRS adoption has been linked to broader economic benefits, as it fosters greater transparency, curtails corruption, and mitigates agency conflicts between corporate managers and shareholders (Ebaid, 2022; N. G. Nguyen & Nguyen, 2023). While prior studies have reported improvements in the level and disaggregation of financial disclosures following IFRS implementation, such outcomes are predominantly observed in firms located in developed countries or jurisdictions characterized by strong capital markets. In contrast, in developing economies, the adoption of IFRS does not necessarily yield comparable effects, as its implementation is often driven more by legislative coercion than by a voluntary commitment to enhance disclosure quality (Pricope, 2016).

Since the inception of IFRS adoption, substantial variations in the extent of adoption have been documented (Tsalavoutas, 2011). Notably, disclosure levels differ both across countries and among individual firms. Cross-country differences (Ahmed et al., 2013; Al-Shammari et al., 2008; Ball, 2006, 2016; Glaum et al., 2013; Lawalata et al., 2024; Mazzi et al., 2017, 2018; Nobes, 2006, 2011; Schipper, 2005; Weetman, 2006) are largely explained by institutional factors, such as the legal framework and the strength of its enforcement, the training and capacity of accounting professionals, the size and depth of capital markets, and national cultural characteristics. In some cases, shortcomings in these institutional mechanisms have resulted in ceremonial adoption processes (Mir & Rahaman, 2005), although the precise effects of such processes warrant further investigation.

At the firm level, variations in disclosure practices have also been widely observed (Akbaba et al., 2023; André et al., 2018; Boujelben & Kobbi-Fakhfakh, 2020; Elzahar et al., 2015; Glaum et al., 2013; Karim & Riya, 2022; Mazzi et al., 2017; Mnif Sellami & Borgi, 2017; Street et al., 1999; Street & Bryant, 2000; Weetman, 2006). These differences are associated with firm-specific characteristics, including industry sector, corporate governance practices, auditor type, firm size, ownership structure, and financial leverage. Such firm-level variations have important implications, notably for the value relevance of accounting information (Tsalavoutas & Dionysiou, 2014).

A study conducted by Rouhou et al. (2021) examined the impact of IFRS adoption on the quality of key performance indicator (KPI) disclosures, comparing the pre- and post-adoption periods. Their findings indicate that both the quality and the extent of KPI disclosures significantly improved following the mandatory adoption of IFRS by UK-listed companies. Similarly, Khaghaany and Jaber (2023), in their analysis of publicly listed banks in Iraq, identified notable changes associated with IFRS adoption, including discrepancies between current and future cash flows and shifts in accounting estimates across both pre- and post-adoption periods.

In a related study, Eluyela et al. (2019) investigated listed SMEs in Nigeria and found that although key financial ratios remained largely unaffected by IFRS implementation, market ratios exhibited significant variation. These fluctuations were primarily attributed to the application of the fair value measurement and asset impairment provisions introduced under IFRS.

It is clear that countries seeking OECD membership are required to undertake comprehensive reforms aimed at strengthening both formal and informal institutions. Drawing on institutional theory, it can be posited that firms operating within stronger institutional environments are more likely to enhance the disclosure of mandatory financial information in their reporting practices. As a result, such firms tend to demonstrate higher levels of financial disclosure. In line with this reasoning, the following hypothesis is proposed:

H1. 

Mandatory IFRS adoption results in increased financial information disclosure.

Osinubi (2020) argued that accounting practices in developed countries, coupled with the perceived legitimacy of IFRS, generate mimetic pressures that serve as key drivers for IFRS adoption in developing economies. This is evidenced in countries such as Pakistan, Egypt, Bangladesh, and Nigeria. The author identified three institutional pillars—regulatory, normative, and cognitive—that encompass elements such as educational quality, regulatory robustness, and shareholder protection.

In line with this perspective, prior studies have employed institutional variables as external factors rooted in institutional theory, positing that organizations respond to institutional pressures and constraints arising from regulatory structures, government agencies, legal systems, courts, and professional standards (Agana et al., 2025).

Christanto and Fuad (2023) similarly argued that IFRS implementation enhances the quality and relevance of accounting information, driven by institutional quality. However, this effect is contingent upon regulatory compliance and variations in implementation and interpretation, given that IFRS are principle-based standards rather than codified laws, thus allowing for interpretive flexibility.

For example, Feng (2021) found that six institutional factors—voice and accountability, political stability and absence of violence/terrorism, government effectiveness, regulatory quality, rule of law, and control of corruption—are statistically significant in determining the value relevance of financial disclosures. Likewise, Ab Abonwara et al. (2021) identified legal systems, regulatory environments, and political ties as significant predictors of disclosure quality and quantity in developing countries, alongside corporate governance mechanisms aimed at protecting shareholder interests (Fernandes & Lourenço, 2018).

In the context of SMEs, Damak-Ayadi et al. (2020) concluded that adoption of IFRS by SMEs is significantly associated with factors such as legal enforcement quality, cultural dimensions, trade networks, and economic growth. At the institutional level, a positive association was observed between coercive and normative isomorphism and IFRS adoption among SMEs. Unlike publicly listed firms, which tend to emulate the best practices of their industry peers, SMEs are more likely to comply with standards due to regulatory coercion rather than industry dynamics or competitive pressures, given their limited economic capacity. Additionally, audit quality and legal compliance were found to be positively and significantly associated with IFRS adoption. Pricope (2016) observed that IFRS adoption in developing countries is primarily driven by mimetic pressures—aligned with institutional isomorphism theory—rather than by firms’ pursuit of anticipated economic benefits.

Based on the existing literature and considering the role of the institutional framework in shaping mandatory disclosure practices, we propose the following hypothesis:

H2. 

The institutional characteristics of a country are associated with the implementation of IFRS.

At the firm level, extant literature has predominantly focused on large corporations and publicly listed entities, primarily because the IFRS are principally designed for such organizations. Drawing on agency theory and stakeholder theory, a consensus has emerged that these firms are subject to heightened public scrutiny. Consequently, inadequate disclosure may serve as a critical source of reputational risk, exacerbate agency conflicts, and result in adverse market outcomes.

Archambault and Archambault (2003) underscored that the disclosure practices of listed companies are shaped not only by mandatory requirements imposed by stock exchanges but also by the disclosure policies specific to the exchanges on which the companies are listed. Furthermore, the extent of ownership dispersion often increases with cross-listing on multiple exchanges, thereby fostering enhanced levels of transparency and exerting a stronger influence on capital markets.

In this context, listed companies are typically under greater institutional pressure to establish robust corporate governance (CG) mechanisms that not only monitor managerial behavior and ensure accountability to shareholders but also safeguard the interests of minority shareholders and other stakeholder groups. Effective CG mechanisms have thus been recognized as pivotal in promoting compliance with IFRS and improving the quality of financial disclosure. For instance, Mnif and Borgi (2020), in their study of firms operating in African economies, found that CG characteristics such as board independence, audit committee (AC) independence, and the frequency of AC meetings are positively associated with adherence to IFRS disclosure requirements. These findings are corroborated by Fernandes and Lourenço (2018), who emphasized the positive effect of CG structures on financial reporting quality. Similarly, Istiningrum (2020) provided evidence that well-functioning CG frameworks are significantly associated with the extent of mandatory financial disclosure.

Considering the above, we posit the following research hypothesis:

H3. 

Corporate governance exerts a positive effect on the extent of financial disclosure under IFRS.

Moreover, the engagement of Big Four audit firms and the establishment of audit committees as part of CG structures are commonly employed variables in evaluating both IFRS adoption and the quality and extent of financial disclosure. Prior research has documented a positive relationship between audit quality and disclosure practices—particularly in the context of IFRS adoption—due to increasing stakeholder pressure, including that exerted by auditors themselves (Misirlioglu et al., 2022; H. T. T. Nguyen et al., 2023; Santana Santos et al., 2014). However, empirical findings remain inconclusive.

For instance, Almaqtari et al. (2021) observed that the impact of engaging a Big Four audit firm was negative in Saudi Arabia and the United Arab Emirates, whereas it was positive in Oman. The authors suggested that the choice of a Big Four auditor may function more as a signaling mechanism rather than reflecting a direct causal relationship with improved disclosure practices. In contrast, other scholars, including Juhmani (2017), Tsalavoutas (2011), Tsalavoutas et al. (2020), and Al-Akra et al. (2010), provided robust empirical evidence supporting a statistically significant positive association between disclosure indices and audit firm size—particularly when audited by Big Four firms.

Drawing on these insights and acknowledging the critical role of audit quality, we propose the following hypothesis:

H4. 

Audit quality exerts a positive effect on the extent of financial disclosure under IFRS.

Other factors influencing IFRS disclosure are associated with firm size (Ab Abonwara et al., 2021; Appiah et al., 2016; Fernandes & Lourenço, 2018; Khlifi, 2022), measured by sales revenue (Białek-Jaworska & Matusiewicz, 2015) or total assets (Archambault & Archambault, 2003). Larger firms are expected to disclose detailed and comprehensive information to reduce agency costs. The findings of Białek-Jaworska and Matusiewicz (2015) and H. T. T. Nguyen et al. (2023) support this hypothesis. Similarly, Santana Santos et al. (2014) found a significant positive relationship between disclosure and firm size. Following this same line of argument, Khlifi (2022) identified that IFRS adoption is associated with firm size, ownership concentration, firm performance, and liquidity.

Profitability (Fernandes & Lourenço, 2018) and debt level (Archambault & Archambault, 2003) are factors associated with the disclosure of mandatory information under IFRS. In their review, Archambault and Archambault (2003) found that a significant number of studies have used the level of debt as a key determinant of financial disclosure under IFRS. However, the results are inconclusive, as some studies found no positive relationship between disclosure and leverage.

The industry sector has also been identified as a relevant factor in prior research examining the extent of compliance with IFRS implementation and disclosure requirements. According to Appiah et al. (2016), industries subject to more stringent regulatory oversight tend to exhibit higher compliance obligations under IFRS, with adherence levels largely determined by sector-specific regulatory frameworks. In their empirical study of listed firms in Ghana, the authors reported a positive and statistically significant association between industry classification and IFRS compliance, but only within certain regulated sectors.

However, the robustness and generalizability of these findings remain limited. A comprehensive review conducted by Samaha and Khlif (2016) on IFRS adoption and compliance across developing economies concluded that industry affiliation is not a consistently significant determinant of IFRS compliance, as it failed to show explanatory power in most studies included in their analysis.

4. Methodology

4.1. Sample

This study employed a quantitative research design to examine the determinants of both the disclosure index and changes in disclosure levels in the pre- and post- period of mandatory adoption of IFRS, specifically focusing on IAS 16 (Property, Plant and Equipment) and IAS 2 (Inventory). The selection of these standards was based on the following criteria related to the underlying assets: (i) these assets are the most common across a wide range of companies and (ii) these assets represent a significant portion of the company’s investment. On the other hand, these standards possess the following characteristics: (i) they include modifications to the criteria for initial recognition, measurement after initial recognition, and derecognition compared to local Generally Accepted Accounting Principles (GAAP) systems, (ii) they feature minimal relevant changes during the analysis period, ensuring stable application of the disclosure requirements, and (iii) in contrast to more complex standards such as intangible assets (IAS 38), financial instruments (IFRS 9), and leasing (IFRS 16), the selected standards are expected to incur lower compliance costs.

The selected Latin American countries—Chile, Peru, Mexico, Argentina, and Colombia—comprise Spanish-speaking nations that are either members of the OECD, such as Mexico, Chile, and Colombia, or are actively engaged in the accession process, as in the cases of Argentina and Peru. Costa Rica, despite being an OECD member, was excluded due to the limited number of its publicly listed companies (publicity firms = 6), which constrains the feasibility of empirical analysis.

The selection of countries in this study was grounded in the OECD’s framework for evaluating candidate nations (OECD, 2017), which prioritizes critical dimensions such as transparency, accessibility of information, and the quality of financial disclosures. These criteria not only serve as essential prerequisites for accession to the OECD but also represent fundamental institutional factors that shape the regulatory environment governing financial reporting. Within this context, existing literature often explains IFRS adoption in developing countries through the lens of mimetic isomorphism—an institutional mechanism where external pressures from OECD member states drive convergence toward globally accepted financial reporting standards (Pricope, 2016).

Building on this foundation, the focus on Latin American countries that are either OECD members or actively pursuing accession is justified by the comprehensive institutional reforms required for entry into this organization. These reforms encompass enhancing public policy standards, anti-corruption frameworks, and institutional efficiency. Furthermore, key dimensions such as strengthened institutional capacity and governance, economic diversification, legal robustness, and adherence to international standards—along with elevated levels of education, innovation, and productivity—constitute necessary conditions for accession. Therefore, concentrating the sample on these countries ensures the availability of higher-quality and more reliable data, while also guaranteeing that the financial information analyzed complies with IFRS, thus enhancing the validity and comparability of the study’s findings.

The empirical analysis covered a five-year window, comprising two years prior to and two years after the official year of IFRS adoption, which is treated as the reference midpoint.

Table 1. IFRS Adoption Year and OECD Membership Status by Country.

Country	Adoption Year	Status in OECD
Argentina	2012	Invitation to become a member in 2024
Chile	2009	Member since 2010
Colombia	2015	Member since 2020
Mexico	2012	Member since 1994
Peru	2011	Invitation to become a member in 2022

shows the year of IFRS adoption for each country in the sample, along with their respective OECD membership status.

The initial dataset comprised 1,123 firm-year observations, corresponding to 374 unique firm-level observations. A rigorous data cleansing process was undertaken to ensure the robustness and comparability of the final sample. Specifically, the following exclusions were applied: (a) firms operating in the financial sector, due to their distinct reporting requirements; (b) observations exhibiting extreme outliers in profitability, ownership concentration, or leverage; (c) records with missing financial data; and (d) firms lacking continuous data coverage for the entire five-year period. Following these refinements, the final sample consisted of 840 firm-year observations, representing 168 publicly listed non-financial firms across the five selected countries.

Financial statement data were collected manually from the official websites of the firms and/or the corresponding national stock exchanges.

Table 2. Sample Distribution by Country.

Country	Firms	Observations
Argentina	44	220
Chile	61	305
Colombia	18	90
Mexico	28	140
Peru	17	85
Total	168	840

presents the distribution of the final sample by country.

Our sample comprises a higher proportion of Chilean firms and a smaller proportion of Peruvian firms.

4.2. Measurements

This section outlines the operationalization of the study’s variables, including the dependent, key explanatory, and control variables.

4.2.1. Dependent Variables

The dependent variables in this study were obtained from a self-constructed disclosure index designed to capture both the level of compliance with disclosure requirements and changes in disclosure practices over time. The methodological procedure used to define and estimate these variables is detailed in Appendix A.

Special attention was given to disclosure items classified as “not applicable” due to contextual factors or firm-specific accounting policy choices. The study implemented several measures to mitigate potential biases arising from such items. In particular, the required level indices and the analysis of changes in disclosure were constructed exclusively for mandatory disclosure items, minimizing the risk of penalizing firms for disclosures that were not relevant.

A total of seven dependent variables were employed, comprising the four disclosure level indices and three disclosure change indices described below:

Disclosure Level Indices

In this study, disclosure indices were constructed using two complementary approaches. The first approach assessed overall disclosure levels, drawing on the methodologies of Street and Gray (2002) and Tsalavoutas et al. (2010), and was further refined using the framework proposed by Santana Santos et al. (2014). This allowed for the separate evaluation of required disclosures, which are independent of contextual factors or firm-specific accounting policies, alongside general compliance indices that incorporate all disclosure items (see Appendix A).

Four distinct indices were developed according to the scope of disclosure (general versus mandatory) and the accounting standard considered: IAS 2 (Inventories) and IAS 16 (Property, Plant, and Equipment). Each disclosure item was classified as mandatory, subject to accounting policy, context-dependent, or based on other standards. For IAS 16, the general disclosure index comprised 18 items, while the required disclosure index focused exclusively on six mandatory items. In the case of IAS 2, the general index included eight items, with the required index considering only three mandatory items (full details in Appendix A).

Compliance with each disclosure item was evaluated using a six-level scale, ranging from fully compliant (0) to not applicable (5). To facilitate comparability, a binary variable was created, coding fully or policy-compliant items (0 or 1) as compliant and all other responses as non-compliant. Following the dichotomous disclosure index approach (Street & Gray, 2002; Tsalavoutas et al., 2010), indices were then computed independently for each standard by averaging the binary scores, with equal weighting assigned to all items.

Disclosure Change Indices

The second approach captured changes in disclosure levels over time, adopting the methodology of Mısırlıoğlu et al. (2013) to assess variations in mandatory compliance before and after adoption (see Appendix A). Specifically, three indices derived from Mısırlıoğlu et al. (2013) were employed to capture variations in disclosure behavior across the observed period: Maintains Disclosure, Maintains Non-Disclosure, and Improves Disclosure. These indices were operationalized as categorical variables to reflect the dynamics of firms’ disclosure practices and are further detailed in Appendix A.

4.2.2. Independent Variables

We employed independent variables at two analytical levels—country and firm—following the framework established by Archambault and Archambault (2003). At the country level, we incorporated Mandatory IFRS adoption, and institutional and macroeconomic indicators including educational attainment, the strength of accounting and auditing standards, shareholder protection mechanisms, and annual changes in Gross Domestic Product (GDP), as proxies for the institutional environment. At the firm level, we considered ownership concentration and the use of a Big Four audit firm as proxies for corporate governance and audit quality, respectively. The operational definitions and measurement strategies for all variables are detailed in

Table 3. Independent Variable Description.

Level	Variable	Description	Source
Country	Mandatory IFRS adoption (Years before Adoption = 1)	A dummy variable that took the value of 1 for the years preceding IFRS adoption. It was constructed individually for each country.	Own database
	Mandatory IFRS adoption (Years after Adoption = 1)	A dummy variable that took the value of 1 for the years following IFRS adoption. It was constructed individually for each country.	Own database
	Education	Measurement of the quality of a country’s education system as the extent to which it met the needs of a competitive economy. A 7-point scale was used, where 1 indicated “not well at all” and 7 indicated “very well.”	World Economic Forum’s Global Competitiveness Index
	Strength of Standard	Measurement of the robustness and transparency of financial reporting and auditing practices within a country in each year. It was measured on a scale from 1 to 7, where 1 represented weak standards and practices, and 7 represented strong standards and practices.	World Economic Forum’s Global Competitiveness Index
	Protection of Minority Shareholders	Measurement of the strength of a country’s legal framework and regulatory environment in safeguarding the rights of minority shareholders, using a scale from 1 to 10, where 1 represented extremely weak protection and 10 meant strong protections.	World Economic Forum’s Global Competitiveness Index
	Change in GDP	Annual Gross Domestic Product (GDP) growth rate, measured in %.	World Economic Forum’s Global Competitiveness Index
Firm	Ownership	Sum of the ownership percentages of the first three shareholders with the highest ownership stakes.	Own database
	BIG4	Dummy variable coded as 1 if the firm was audited by EY, Deloitte, PwC, or KPMG, and 0 otherwise.	Own database

.

4.2.3. Control Variables

Control variables, including sectoral and firm-specific characteristics, were in line with existing literature (Ab Abonwara et al., 2021; Archambault & Archambault, 2003; Fernandes & Lourenço, 2018; Glaum et al., 2013; Khlifi, 2022).

Firms were classified into four economic sectors —Primary, Secondary, Tertiary, and Quaternary—based on the typology proposed by Kenessey (1987). Three dummy variables were constructed to represent these classifications, each taking the value of 1 if the firm belonged to the corresponding sector and 0 otherwise.

Firm characteristics considered in the analysis included size, profitability, and leverage. Firm size was measured as the natural logarithm of total assets, expressed in thousands of U.S. dollars (Archambault & Archambault, 2003). Profitability was proxied by Return on Equity (ROE), calculated as the ratio of net income to shareholders’ equity (Fernandes & Lourenço, 2018). Leverage was defined as the ratio of total liabilities to total assets, capturing the firm’s capital structure (Archambault & Archambault, 2003).

4.3. Estimation Model

We employed a regression model to estimate the determinants of IFRS disclosure, at level and changes. In our case, we had seven dependent variables for each standard. We used ordinary least squares to estimate the model parameters.

The mathematical formulation of the models based on the disclosure level was:

$$\begin{array}{ll}Dis{c}_{i,c,t}= {\beta }_0+{\beta }_1& E{d}_{c,t}+ {\beta }_{2}Str\text{\_}Stan{d}_{c,t}+ {\beta }_{3}Pro{t}_{c,t}+ {\beta }_4\Delta GD{P}_{c,t}+ {\beta }_{5}IFR{S}_{c,t}+{\beta }_{6}Ow{n}_{i,c,t}+{\beta }_{7}BIG{4}_{i,c,t}+ {\beta }_{8}P{A}_{i,t} +{\beta }_{9}A{A}_{i,t}\\ & +{\beta }_{10}{\mathrm{VC}}_{i,c,t}+{\epsilon }_{i,c,t}\end{array}$$

In this formulation, $Dis{c}_{i,t}$ is the level of disclosure for both standards (IAS 16 and IAS 2) of firm i in the year t. At country level, $E{d}_{c,t}$, $Str\text{\_}Stan{d}_{c,t}$, $Pro{t}_{c,t}$, $\Delta GD{P}_{c,t}$ and $IFR{S}_{c,t}$ refer to the five variables at the country level related to Education, Strength of standards, Protection of shareholders, Change in GDP of country c in the year t, and Mandatory IFRS adoption, respectively. At firm level, $Ow{n}_{i,t}$ and $BIG{4}_{i,t}$ refer to the two variables at firm level related to Ownership and BIG4, of firm i in the year t, respectively. Finally, ${\mathrm{VC}}_{i,t}$ refers to the control variables at two levels: firm and sector, of firm i in the year t.

The regression coefficients were estimated using ordinary least squares (OLS), which provided consistent and efficient estimates under standard assumptions. As a robustness analysis, a fractional logit and Tobit models (Papke & Wooldridge, 1996) were estimated considering that independent variables were a proportion between 0 and 1. The results obtained were consistent with those of the OLS model in terms of signs, and statistical significance of the independent variables. This suggested that the main results were robust to the estimation method. Additionally, although the OLS model imposed no natural restrictions on the range of the dependent variable, the predicted values remained reasonably within the allowable range, and no significant improvement in fit was obtained by employing nonlinear models such as Tobit or fractional logit.

In the regression models, firm-level control variables such as Size and Leverage are identified as potentially endogenous. Endogeneity refers to the presence of a reciprocal relationship between the dependent variable and one or more explanatory variables, which violates the exogeneity assumption underlying OLS estimation. In such cases, according to Gujarati and Porter (2009), unlike in single-equation models, the system must be treated as a set of simultaneous equations to obtain consistent and unbiased parameter estimates. When endogeneity is present, the regressor becomes correlated with the error term, thereby violating a key assumption of the OLS method. As a result, OLS estimates are biased and inconsistent. In the absence of endogeneity, OLS remains the most efficient estimation technique. However, when endogeneity is detected, the use of two-stage least squares (2SLS) provides consistent estimates and is therefore the preferred approach. The instrumental variables (IV) approach relies on the 2SLS estimation technique. Instruments are additional exogenous variables that are uncorrelated with the error term and serve to address the issue of endogeneity in the model.

To address concerns about the potential endogeneity of the Size and Leverage variables, we applied the Durbin-Wu-Hausman (DWH) test. This approach involves first regressing each potentially endogenous variable on all exogenous instruments to obtain residuals. These residuals are then included in the original structural equation, and a t-test is performed to determine their statistical significance. Rejection of the null hypothesis indicates that the endogenous regressors significantly affect the estimates, thereby justifying the use of IV techniques to ensure consistent and unbiased results.

Accordingly, in the level models, we used the lagged values of Size and Leverage as instruments. These lagged terms did not appear to be directly associated with the disclosure indices, satisfying the exclusion restriction, while serving as strong predictors of the current values of the potentially endogenous variables. When we tested the statistical significance of the coefficients on the residuals in the equations for each model separately by the DWH Test, we found that all suspected variables in all the models were exogenous. The significance levels of the residuals for the models were as follows:

Model 1: Size (p = 0.590617), Leverage (p = 0.049); Model 2: Size (p = 0.671568), Leverage (p = 0.156232); Model 3: Size (p = 0.4964), Leverage (p = 0.2314); Model 4: Size (p = 0.54902), Leverage (p = 0.22213).

Consequently, Model 1 was estimated using 2SLS to address the potential endogeneity of Leverage, while Models 2 through 4 were estimated using OLS to assess the effects of the explanatory variables on the dependent variable.

The mathematical formulation of the models for disclosure change was:

$$\Delta Dis{c}_{i,c}= {\beta }_0+{\beta }_1\Delta GD{P}_{i,c}+ {\beta }_{2}Ow{n}_{i,c}+{\beta }_{3}BIG{4}_{i,c}+{\beta }_4{\mathrm{VC}}_{i,c}+{\epsilon }_{i,c}$$

Here, $\Delta Dis{c}_i$ is the change of disclosure (maintains disclosure, maintains non-disclosure, and improves disclosure) for both standards (IAS 16 and IAS 2) of firm i. At country level, $\Delta GD{P}_{i,c}$ refers to change in GDP, of country c. At firm level, $Ow{n}_{i,t}$ and $BIG{4}_{i,t}$ refer to the two variables at firm level related to Ownership and BIG4, of firm i, respectively. Finally, ${\mathrm{VC}}_{i,t}$ refers to the control variables of firm i, at two levels: firm and sector.

5. Results

5.1. Descriptive Statistics

Table 4. Descriptive Statistics for Disclosure Level Analysis.

	Argentina (2010–2014)		Chile (2007–2011)		Colombia (2013–2017)		Mexico (2010–2014)		Peru (2009–2013)
	Mean	Std. Dev.	Mean	Std. Dev.	Mean	Std. Dev.	Mean	Std. Dev.	Mean	Std. Dev.
Dependent Variables
General IAS 16	30.8%	7.1%	26.0%	13.0%	37.0%	14.1%	32.5%	10.4%	41.8%	5.0%
Required IAS 16	81.0%	16.7%	64.4%	26.4%	79.8%	25.8%	75.7%	16.2%	94.1%	8.0%
General IAS 2	23.1%	11.0%	17.5%	16.6%	22.4%	17.4%	29.0%	15.9%	27.4%	6.5%
Required IAS 2	59.8%	27.6%	42.1%	37.6%	52.6%	37.7%	60.0%	27.2%	66.3%	8.1%
Variables at country level
Education	3.24	0.14	3.22	0.14	3.35	0.13	3.00	0.15	2.54	0.15
Strength of Standards	3.84	0.05	5.57	0.02	4.64	0.13	4.86	0.12	4.90	0.10
Protection Minority Shareholders	3.43	0.06	5.13	0.18	4.08	0.06	4.23	0.11	4.34	0.16
Change in GDP	6.4%	3.7%	0.1%	10.2%	8.1%	6.8%	3.6%	4.6%	8.4%	3.4%
Variables at sector level
Primary	36.4%	48.2%	9.8%	29.8%	22.2%	41.8%	14.3%	35.1%	64.7%	48.1%
Secondary	47.7%	50.1%	24.9%	43.3%	27.8%	45.0%	42.9%	49.7%	35.3%	48.1%
Tertiary	11.4%	31.8%	46.2%	49.9%	22.2%	41.8%	28.6%	45.3%	0.0%	0.0%
Quaternary	4.5%	20.9%	19.0%	39.3%	27.8%	45.0%	14.3%	35.1%	0.0%	0.0%
Variables at firm level
Size	11.01	1.86	11.82	2.78	14.13	2.15	14.05	1.33	12.54	1.58
Return on Equity	11.6%	16.8%	6.4%	16.0%	5.8%	13.1%	9.2%	12.7%	11.6%	15.1%
Leverage	45.9%	22.2%	37.1%	24.7%	38.4%	19.0%	47.1%	18.9%	34.4%	11.8%
Ownership	46.3%	37.3%	54.1%	35.1%	32.9%	36.2%	36.1%	35.8%	61.2%	28.9%
BIG4	52.3%	50.1%	59.0%	49.3%	92.2%	26.9%	89.3%	31.0%	77.6%	41.9%
Number of firms per year (N)	44		61		18		28		17

shows the descriptive statistics for variables involved in disclosure level analysis.

We observed that the IAS 16 (both general and required), related to property, plant, and equipment, showed that companies in Peru, on average, exhibited the highest level of compliance, while companies in Chile showed the lowest level of compliance. In terms of IAS 2, related to inventory, companies in Mexico, on average, exhibited the highest level of compliance with the general standard, compared to companies in Chile, which, on average, showed the lowest level. Regarding the required standard of IAS 2, companies in Peru, on average, had the highest level of compliance, while those in Chile had the lowest.

Regarding country-level variables, we observed that the level of quality education system was, on average, at lower levels in Mexico (3.00) and Peru (2.54), compared to Chile and Argentina (3.22 and 3.24, respectively), while Colombia had the highest level (3.35). Argentina was the country with the weakest standards and practices (3.84), while Chile (5.57), on average, exhibited the strongest standards of robustness and transparency in financial reporting and auditing practices. In addition, Chile had the strongest protections for minority shareholders (5.13). Finally, in terms of GDP change, Chile represented the lowest average annual change in GDP (0.1%).

At the sector level, the distribution of companies varied across countries. While Peru had companies exclusively in the primary and secondary sectors, Colombia’s sample was more evenly distributed across all four sectors. In the case of Chile, 66% of companies were in the tertiary and quaternary sectors, whereas approximately 70% of Mexican companies were in the secondary and tertiary sectors.

At the firm level, the largest companies, on average, are in Colombia, while firms in Peru and Argentina exhibited similar, and the highest, average ROE. Companies in Mexico, on average, had the highest levels of leverage. In Peru, firms showed, on average, the highest ownership percentage held by the top three shareholders with the largest stakes. Additionally, approximately 90% of Colombian companies were audited by one of the Big Four auditors, whereas just over 50% of Argentine companies underwent audits by these firms.

Table 5. Descriptive Statistics for Disclosure Change Analysis.

	Argentina (IFRS Adoption Year = 2012)		Chile (IFRS Adoption Year = 2009)		Colombia (IFRS Adoption Year = 2015)		Mexico (IFRS Adoption Year = 2012)		Peru (IFRS Adoption Year = 2011)
	Mean	Std. Dev.	Mean	Std. Dev.	Mean	Std. Dev.	Mean	Std. Dev.	Mean	Std. Dev.
Dependent Variables
Maintain Disclosure IAS 16	91.7%	15.5%	62.3%	26.1%	70.7%	29.6%	84.2%	18.1%	93.1%	8.5%
Maintain Non-Disclosure IAS 16	61.4%	46.5%	29.5%	39.8%	19.4%	33.5%	61.0%	37.7%	17.6%	39.3%
Improve Disclosure IAS 16	3.0%	7.4%	29.5%	21.6%	16.7%	16.2%	13.1%	15.9%	6.9%	8.5%
Maintain Disclosure IAS 2	89.8%	20.1%	77.3%	29.5%	74.1%	37.1%	85.7%	25.9%	100.0%	0.0%
Maintain Non-Disclosure IAS 2	62.5%	47.2%	22.1%	37.8%	33.3%	45.7%	63.1%	46.3%	100.0%	0.0%
Improve Disclosure IAS 2	5.3%	14.3%	18.0%	24.0%	16.7%	26.2%	10.7%	18.3%	0.0%	0.0%
Independent Variables at country level
Change in GDP	3.7%	0.0%	0.2%	0.0%	4.3%	0.0%	5.9%	0.0%	9.5%	0.0%
Independent Variables at sector level
Primary	36.4%	48.7%	9.8%	30.0%	22.2%	42.8%	14.3%	35.6%	64.7%	49.3%
Secondary	47.7%	50.5%	24.6%	43.4%	27.8%	46.1%	42.9%	50.4%	35.3%	49.3%
Tertiary	11.4%	32.1%	45.9%	50.2%	22.2%	42.8%	28.6%	46.0%	0.0%	0.0%
Quaternary	4.5%	21.1%	19.7%	40.1%	27.8%	46.1%	14.3%	35.6%	0.0%	0.0%
Independent Variables at corporate level
Size	10.96	1.86	12.08	2.81	14.11	2.25	14.19	1.32	12.73	1.62
Profitability	8.8%	15.2%	9.4%	13.8%	6.5%	14.7%	8.9%	12.5%	11.8%	12.6%
Leverage	47.6%	21.0%	36.7%	24.5%	41.3%	18.6%	47.6%	18.2%	33.5%	12.2%
Ownership	46.0%	37.8%	53.9%	35.4%	34.3%	37.1%	33.9%	35.8%	61.2%	29.7%
BIG4	52.3%	50.5%	60.7%	49.3%	94.4%	23.6%	92.9%	26.2%	76.5%	43.7%
Number of firms per year (N)	44		61		18		28		17

shows the descriptive statistics for variables involved in disclosure change analysis.

Regarding the disclosure change of IAS 16, companies with the highest levels of maintaining disclosure were in Argentina and Peru (91.7% and 93.1%, respectively). Companies with the highest levels of maintaining non-disclosure were also in Argentina (61.4%), as well as in Mexico (61%). Companies with the highest levels of improving the disclosure were in Chile (29.5%). Regarding IAS 2, companies with the highest levels of maintaining disclosure were in Argentina and Peru (89.8% and 100%, respectively), and companies with the highest levels of maintaining non-disclosure were also in Argentina and Peru (62.5% and 100%, respectively). Finally, companies with the highest levels of improving disclosure were in Chile (18%).

In addition, Chile represented the lowest average annual change in GDP (0.1%). At the firm level, the largest companies were in Mexico and Colombia, while firms in Argentina were the smallest. The companies in Colombia exhibited the lowest ROE. Companies in Mexico and Argentina had the highest levels of leverage. Finally, approximately 90% of Colombian and Mexican companies were audited by one of the Big Four auditors (94.4% and 92.9%, respectively).

5.2. Regression Results

Table 6. Regression Results of Disclosure Level.

Dependent Variable	Model 1 General Disclosure (IAS 16)	Model 2 Required Disclosure (IAS 16)	Model 3 General Disclosure (IAS 2)	Model 4 Required Disclosure (IAS 2)
Estimation Method	2SLS	OLS	OLS	OLS
Constant	0.134529 *	0.766840 ***	−0.136836 *	−0.162873
	(0.062763)	(0.126953)	(0.076391)	(0.162331)
Size	0.010764 ***	0.013987 ***	0.016779 ***	0.035815 ***
	(0.001736)	(0.003491)	(0.002101)	(0.004464)
Profitability	−0.006866	0.006345	0.019549	−0.007535
	(0.022155)	(0.044880)	(0.027006)	(0.057387)
Leverage	0.093178 ***	0.109190 ***	0.113690 ***	0.295726 ***
	(0.019191)	(0.033198)	(0.019976)	(0.042450)
Primary	0.054940 ***	0.081449 ***	0.137464 ***	0.333179 ***
	(0.012106)	(0.024547)	(0.014770)	(0.031387)
Secondary	0.049412 ***	0.097807 ***	0.165765 ***	0.359074 ***
	(0.011054)	(0.022417)	(0.013489)	(0.028663)
Tertiary	0.016229	0.023993	0.031783 **	0.082631 ***
	(0.011336)	(0.022959)	(0.013815)	(0.029358)
Mandatory IFRS adoption (Years before Adoption = 1)	−0.018110 * (0.010076)	−0.040658 ** (0.020452)	−0.010793 (0.012306)	−0.016651 (0.026151)
Mandatory IFRS adoption (Years after Adoption = 1)	0.044973 *** (0.009385)	0.086220 *** (0.019029)	0.024081 ** (0.011450)	0.044582 * (0.024332)
Education	−0.026765 *	−0.045843	−0.008696	−0.005696
	(0.013769)	(0.027918)	(0.016799)	(0.035698)
Strength of standards	−0.030255 ***	−0.079876 ***	0.009213	−0.007734
	(0.006633)	(0.013464)	(0.008102)	(0.017216)
Protection of Minority shareholders	0.027172 ***	0.025916 ***	−0.006608	−0.016124
	(0.004681)	(0.009433)	(0.005676)	(0.012061)
Change in GDP	0.208357 ***	0.441688 ***	0.074469	0.139966
	(0.050375)	(0.102148)	(0.061465)	(0.130613)
Ownership	0.033326 ***	0.065647 ***	0.015573	0.052347 **
	(0.009411)	(0.019062)	(0.011470)	(0.024373)
Audited by BIG4	0.005914	0.022088	0.017883 *	0.021883
	(0.008784)	(0.017776)	(0.010697)	(0.022730)
R-squared	36.1%	29.8%	40.4%	42.6%
N	840	840	840	840

Standard errors in parentheses. Bold for statistically significant data. Significance levels: *** p < 0.001, ** p < 0.01, * p < 0.05. Source: own elaboration.

shows the regression results for the disclosure level as the dependent variable. We ran four models: two for IAS 16, covering both the general and required compliance, and two for IAS 2, also addressing both levels of compliance.

Regarding firm characteristics, the results across all models indicated that both size and leverage had a positive and significant effect on the disclosure level. Specifically, the findings regarding size aligned with the literature, which suggested that larger firms are more likely to disclose detailed and comprehensive information to reduce agency costs (Białek-Jaworska & Matusiewicz, 2015; H. T. T. Nguyen et al., 2023; Santana Santos et al., 2014). Additionally, we found that leverage had a positive and significant effect on financial disclosure in both standards, indicating that firms with higher levels of debt tend to disclose more financial information (Archambault & Archambault, 2003).

Concerning economic sectors, we observed that firms in the primary and secondary sectors exhibited a significant and positive effect on the level of required and general information disclosed. This finding aligned with the literature (Karim & Riya, 2022) and can be explained by the isomorphic tendency of firms within the same sector to imitate the best practices of their competitors. As a result, it is less likely that a company within an industry where all firms adopt IFRS and enhance the quantity and disaggregation of information will choose to withhold data or present low levels of accounting information disaggregation (Li et al., 2021).

Our analysis revealed a positive and statistically significant relationship between mandatory IFRS adoption and the level of disclosure, both in general and required IAS 16 and IAS 2 standards. These findings supported our first hypothesis (H1) and were consistent with prior literature suggesting that firms operating within stronger institutional frameworks are more likely to enhance the disclosure of mandatory financial information. As a result, such firms tend to demonstrate higher levels of transparency in their financial reporting.

Regarding the other country-level factors—in the cases of IAS 16 (both general and required) Education, Strength of standards, Protection of minority shareholders, and change in GDP—we observed that they were statistically significant. However, two of these factors (Education and Strength of standards) showed negative effects. While these negative relationships appeared counterintuitive compared to the literature in developed countries—where the quality of education and transparency standards typically drove higher levels of disclosure—they suggested that cultural differences may mediate this relationship. In particular, this negative sign can be explained by the degree of disaggregation possible in the disclosure of information within emerging market economies, especially under IAS 16 (Mongrut et al., 2021). While the other two (Protection of minority shareholders and change in GDP) showed positive effects in both general and required standards, these findings aligned with existing literature, as higher shareholder protection is associated with a greater index of disclosure (Fernandes & Lourenço, 2018).

Additionally, in the context of developing countries, such as those in our sample, a positive change in GDP was linked to higher levels of disclosure in IAS 16 (Ab Abonwara et al., 2021). In contrast, for both the general and required IAS 2 standards, no significant effects of country-level variables were observed. Therefore, our findings provided partial support for the second hypothesis (H2).

The literature underscored the pivotal role of CG mechanisms in fostering compliance with IFRS and enhancing the quality of financial disclosure (Fernandes & Lourenço, 2018; Istiningrum, 2020; Mnif & Borgi, 2020). In this study, particular attention was given to ownership structure, operationalized as the aggregate ownership held by the top three shareholders. The findings revealed that this variable exerts a positive and significant influence on the level of disclosure, in the case of the IAS 16 standard for general and required compliance and a required disclosure compliance for the IAS 2 standard. This suggested that ownership concentration—potentially indicative of stronger control or a heightened interest in transparency—may exert a more substantial impact on disclosure practices than some conventional CG mechanisms. This result partially supported hypothesis three (H3).

Finally, the literature highlighted the presence of audit quality as determinant of the extent of financial disclosure (Misirlioglu et al., 2022; H. T. T. Nguyen et al., 2023; Santana Santos et al., 2014). In this study, we found a statistically significant positive influence of a Big Four audit on the level of disclosure, reinforcing the view that audit firm reputation continues to serve as a key indicator of financial reporting quality and transparency (Al-Akra et al., 2010; Juhmani, 2017; Tsalavoutas, 2011; Tsalavoutas et al., 2020). However, this is only in the case of the IAS 2 standard, for general compliance. Therefore, the results partially supported the fourth hypothesis (H4).

To give robustness to previous results,

Table 7. Regression Results of Disclosure Change.

Dependent Variable	Maintain Disclosure		Maintain Non-Disclosure		Improve Disclosure
	Model 1 IAS 16	Model 2 IAS 2	Model 3 IAS 16	Model 4 IAS 2	Model 5 IAS 16	Model 6 IAS 2
Constant	0.801499 ***	1.182804 ***	0.54301 ***	−0.06403	0.156676 **	−0.145565
	(0.100474)	(0.115529)	(0.19616)	(0.18485)	(0.078516)	(0.088003)
Size	−0.023219 ***	−0.028193 ***	−0.01137	0.01376	0.010653	0.018577 **
	(0.008476)	(0.009746)	(0.01655)	(0.01559)	(0.006623)	(0.007424)
Profitability	−0.063029	−0.147374	−0.13425	−0.22511	0.117107	0.126747
	(0.125336)	(0.144117)	(0.24470)	(0.23059)	(0.097944)	(0.109779)
Leverage	0.121681	−0.158625	0.03110	0.45133 ***	−0.031227	0.058880
	(0.085081)	(0.097830)	(0.16611)	(0.15653)	(0.066487)	(0.074521)
Primary	0.072412	0.006524	0.14516	0.18282	−0.075323	0.016672
	(0.060585)	(0.069663)	(0.11828)	(0.11146)	(0.047344)	(0.053065)
Secondary	0.128643 **	0.017723	0.16768	0.19040 *	−0.081369 *	0.039900
	(0.055338)	(0.063630)	(0.10804)	(0.10181)	(0.043244)	(0.048470)
Tertiary	0.150838 ***	−0.023246	0.23987 **	0.03060	−0.109195 **	0.051831
	(0.056985)	(0.065523)	(0.11125)	(0.10484)	(0.044531)	(0.049912)
Change in GDP	4.092845 ***	2.565335 ***	146,415	7.06960 ***	−2.977099 ***	−2.166158 ***
	(0.646012)	(0.742812)	(126123)	(118852)	(0.504829)	(0.565828)
Ownership	−0.008632	0.040504	−0.19064 **	−0.03778	0.065667 *	−0.007788
	(0.047528)	(0.054650)	(0.09279)	(0.08744)	(0.037141)	(0.041629)
Audited by BIG4	−0.030867	−0.033559	−0.16402 *	−0.19347 **	0.033274	0.058394
	(0.046285)	(0.053220)	(0.09036)	(0.08515)	(0.036170)	(0.040540)
R-squared	24.7%	13.9%	7.2%	29.7%	27.4%	14.5%
N	168	168	168	168	168	168

Standard errors in parentheses. Bold for statistically significant data. Significance levels: *** p < 0.001, ** p < 0.01, * p < 0.05. Source: own elaboration.

shows the regression results for the disclosure change between the pre- and post-adoption periods (maintain disclosure, maintain non-disclosure, and improve disclosure) as the dependent variable. We ran six models: three for IAS 16 and three for IAS 2.

In the models related to maintaining disclosure, firm size had both a negative and significant effect. That is, larger firms were less likely to maintain disclosure, precisely because they were more inclined to disclose information to reduce agency costs (Białek-Jaworska & Matusiewicz, 2015; H. T. T. Nguyen et al., 2023; Santana Santos et al., 2014). It appeared that they aimed to improve disclosure rather than consistently maintain it. We found that the secondary sector had a positive and significant effect on the maintenance of disclosure under the IAS 16 standard, suggesting that industry dynamics influenced disclosure maintenance (Karim & Riya, 2022). However, this control was not significant in explaining the maintenance of disclosure under the IAS 2 standard. Regarding the country-level factors, we observed that for both IAS 16 and IAS 2 standards, changes in GDP had a positive and significant effect on the maintenance of disclosure (Ab Abonwara et al., 2021) supporting our hypothesis two (H2).

In the models related to maintaining non-disclosure, regarding firm-level control variables, we found a positive and significant effect of firm leverage only in the case of IAS 2. This implied that a higher level of firm debt was associated with a greater likelihood of maintaining non-disclosure of information. At the economic sector control variable, firm in tertiary sector had a positive and significant effect in the case of IAS 16. At the country level, the effect of changes in GDP was positive and significant in relation to the maintenance of non-disclosure, but only for the IAS 2 standard (Ab Abonwara et al., 2021). This counterintuitive result may be explained by the institutional development and cultural characteristics of the country, which significantly influenced disclosure practices in emerging market economies (Mongrut et al., 2021). At the firm level, ownership had a negative and significant effect under standard IAS 16 and a negative but not significant effect under standard IAS 2, partially supporting our hypothesis three (H3). A higher level of ownership concentration adversely affected the maintenance of non-disclosure, suggesting that greater ownership control generates a greater interest in maintaining disclosure transparency as a corporate governance mechanism (Fernandes & Lourenço, 2018; Istiningrum, 2020; Mnif & Borgi, 2020). The only factor that had a significant effect on the maintenance of non-disclosure, for both standards (IAS 16 and IAS 2), is whether the company was audited by one of the Big Four auditors, and the effect was negative and significant. This implied that companies audited by the Big Four were more likely to comply with disclosure requirements, reducing the likelihood of non-disclosure (Mısırlıoğlu et al., 2013) in support of hypothesis four (H4).

In the models related to improving disclosure, firm size had a positive and significant effect in the case of the IAS 2 standard. This implied that larger firms are more likely to improve disclosure because they are more inclined to reduce agency costs (Białek-Jaworska & Matusiewicz, 2015; H. T. T. Nguyen et al., 2023; Santana Santos et al., 2014) and therefore they aim to improve disclosure. Concerning economic sectors, the results indicated a negative and significant effect on the improvement of disclosure for companies in the secondary and tertiary sectors for IAS 16. Regarding the country-level factor, we observed that for both standards, IAS 16 and IAS 2, changes in GDP had a negative and significant effect on the improvement of disclosure. In agreement with Damak-Ayadi et al. (2020) and Ab Abonwara et al. (2021), the latter result suggested that an environment with higher uncertainty hinders disclosure improvement, providing support for our hypothesis two (H2). The results showed that ownership concentration had a positive and significant effect in the case of the IAS 16 standard, partially supporting hypothesis 3 (H3). This result aligned with the findings previously reported by Mnif and Borgi (2020), Fernandes and Lourenço (2018), and Istiningrum (2020) regarding the positive impact of CG mechanisms on compliance and the improvement of mandatory financial disclosure.

6. Discussion

The findings of this study offer important insights into the dynamics of IFRS disclosure in emerging economies, particularly among listed companies in Latin American OECD countries. The positive and statistically significant relationship between firm size and IFRS disclosure confirms the findings of previous studies: larger firms tend to disclose more extensive financial information due to their greater public visibility, more rigorous stakeholder scrutiny, and greater availability of resources (Ebaid, 2022; Leuz & Wysocki, 2016). These companies often have the technical and financial capabilities necessary to comply with the demanding financial reporting standards set by IFRS.

Also, the positive effect of financial leverage on disclosure supports the agency theory perspective. Firms with high levels of indebtedness face higher monitoring costs and agency conflicts, which can be mitigated by more transparent reporting practices (Bessler et al., 2023). By improving the quality and extent of the information disclosed, these firms can reduce information asymmetry and lower their debt costs.

The finding that macroeconomic growth, as represented by changes in GDP, has a positive impact on disclosure reinforces the relevance of country-level economic conditions. In more dynamic economies, firms face greater incentives to attract investment and convey signals of stability through increased transparency (Li et al., 2021). This study further identifies that changes in GDP could also be interpreted as a signal of uncertainty in the economic environment that may encourage modifications in disclosure behavior, as reported by Ozili (2021). This finding aligns with signaling theory, which argues that firms voluntarily disclose more information to communicate favorable performance and reduce investor uncertainty.

Furthermore, the role of minority shareholder protection as a significant determinant of disclosure behavior highlights the importance of the institutional environment in shaping financial transparency. Greater legal protection for investors generates a demand for more detailed and reliable financial reporting, which motivates companies to align with the best international practices (Carmona & Trombetta, 2008). This finding is consistent with legitimacy theory, which suggests that firms operating in institutional contexts that value transparency may adopt more comprehensive disclosure practices to meet stakeholder expectations and reinforce their legitimacy.

Conversely, the absence of significant effects on some institutional variables underscores the complexity of institutional influences on disclosure in emerging markets. While formal regulations may exist, institutional capacity and effective enforcement vary considerably across countries, limiting their real impact on corporate behavior. This observation is consistent with criticisms of IFRS adoption in developing contexts, where weak regulatory environments may reduce the effectiveness of the standards (De George et al., 2016).

Notably, the focus on IAS 2 (Inventories) and IAS 16 (Property, Plant, and Equipment) provides a practical and relevant assessment of companies’ compliance with core elements of IFRS that are broadly applicable across different industries. The variation in disclosure between these standards may reflect differences in industry practices, asset structure, and internal accounting policies. This evidence highlights the importance of considering both standard-specific dynamics and firm-specific characteristics when analyzing the implementation of IFRS. Our results are consistent with the findings of Zehri and Chouaibi (2013), who conclude that the developing countries more favorable to IFRS adoption have a high economic growth rate, a high level of education, and a legal system based on common law.

Table 8. Summary of Hypotheses, Explanatory Variables, Predicted Effects, and Empirical Results.

Hypotheses	Explanatory Variable	Predicted Sign	Standard	Compliance (Yes/No)	Results
H1. Mandatory IFRS adoption results in increased financial information disclosure	Mandatory IFRS adoption (Year after Adoption = 1)	(+)	IAS 16	Yes	Supported
			IAS 2	Yes
H2. The institutional characteristics of a country influence the implementation of IFRS	Education	(+)	IAS 16	No	Partially Supported
			IAS 2	No
	Strength of standards	(+)	IAS 16	No
			IAS 2	No
	Protection of minority shareholders	(+)	IAS 16	Yes
			IAS 2	No
	Change in GDP	(+)	IAS 16	Yes
			IAS 2	No
H3. Corporate governance exerts a positive effect on the extent of financial disclosure under IFRS	Ownership	(+)	IAS 16	Yes	Partially Supported
			IAS 2	Yes (Only Required Disclosure)
H4. Audit quality exerts a positive effect on the extent of financial disclosure under IFRS	Audited by BIG4	(+)	IAS 16	No	Partially Supported
			IAS 2	Yes (Only General Disclosure)

presents a summary of the hypotheses tested in this study, including the explanatory variables, their expected directional effects, the standards evaluated, and the empirical results obtained.

IFRS adoption has a positive impact on disclosure levels, as posited in Hypothesis 1. When institutional variables such as the protection of minority investors and GDP growth are included, the results in the level models indicate an increase in disclosure, aligning with expectations. However, in the change model, GDP growth is positively and significantly associated with the maintenance of non-disclosure, suggesting that in periods of economic expansion, firms may face less pressure to enhance transparency, particularly when disclosure practices are already limited. Similarly, institutional variables such as Education and Strength of Standards show negative and significant effects on disclosure in the level models, particularly under IAS 16. These seemingly counterintuitive findings may be explained by cultural factors, institutional weaknesses, and the social and political particularities of the emerging economies included in the sample. Collectively, these results suggest that Hypothesis 2 is only partially supported.

With regard to corporate governance, a positive effect is observed on disclosure under IAS 16 and for required disclosure under IAS 2. This can be explained by the strategic role of fixed assets in signaling financial strength and stability. However, this effect is not observed for general disclosures under IAS 2, as inventories are primarily operational in nature and not considered strategic assets. Thus, Hypothesis 3 is also partially supported.

Finally, the presence of a Big Four auditor enhances general disclosure under IAS 2 but does not show a significant effect on disclosure under IAS 16, indicating that Hypothesis 4 is partially supported. These results align with the findings of Mongrut et al. (2021), who argue that a country’s institutional development and cultural characteristics significantly influence disclosure practices. In contexts where institutions are weaker, there is a greater tendency toward non-compliance with standards.

The findings support the relevance of a multi-theoretical approach, given the interplay of factors and social agents that shape financial disclosure practices. In this regard, firm size and market exposure reinforce the applicability of stakeholder theory, as larger firms tend to exert significant influence over multiple stakeholder groups, including shareholders, investors, and creditors.

Conversely, country-level variables associated with institutional frameworks suggest that institutional theory provides a suitable lens for analysis. Elements such as the legal environment, corporate governance standards, and the quality of auditing regulations are among the factors that promote greater disclosure.

Aligned with this perspective, financial information also functions as a signaling mechanism. Thus, increased disclosure—particularly of positive information—can be interpreted through signaling theory, which is closely linked to agency theory. From this standpoint, enhanced transparency may elicit favorable market responses, thereby increasing incentives for managerial agents.

7. Conclusions

Our findings suggest that firms’ disclosure practices are influenced by a combination of firm-level and country-level factors. Larger firms, particularly those listed on stock exchanges, are more likely to enhance their disclosure following the adoption of IFRS, likely due to greater public scrutiny and market expectations. Additionally, the strength of institutional frameworks—especially those related to the legal system, auditing standards, and corporate governance—plays a critical role in shaping firms’ disclosure behavior. Moreover, periods of economic growth appear to create favorable conditions for firms to improve the structure and quality of their information disclosure, suggesting that the macroeconomic context is also relevant in fostering transparency.

Building on these findings, this study contributes to both academic research and public policy by offering a nuanced theoretical perspective. From a theoretical perspective, the results underscore the importance of employing a multi-theoretical framework to analyze disclosure behavior in emerging markets. This approach is particularly pertinent given the strategic role that financial information plays in global markets and the multiplicity of stakeholder interests involved in corporate reporting. Empirically, the research adds value through its distinctive focus on Latin America, specifically in the context of the OECD accession process—an institutional setting that is especially relevant for understanding regulatory alignment and international convergence. Methodologically, the use of a “before–after” window around IFRS adoption strengthens the design, enabling a clearer observation of regulatory impacts over time. Furthermore, the systematic operationalization of disclosures at the standard level—paired with a strong alignment between the descriptive statistics and the regression analyses—reinforces the internal consistency and robustness of the empirical results. Taken together, these elements position the study as a substantial contribution to the literature on financial disclosures and the institutional determinants shaping transparency and accountability in emerging market contexts.

Beyond theoretical and empirical contributions, the findings also carry important implications for public policy. The results indicate that improving the quality of financial disclosure in developing countries entails more than merely aligning regulations with IFRS. It is crucial to strengthen institutional quality, enhance enforcement mechanisms, and build firms’ internal capabilities. In particular, the study emphasizes the importance of improving internal control systems and reinforcing supervisory institutions, thereby consolidating the legal and regulatory infrastructure necessary for effective IFRS implementation.

Furthermore, the findings underscore the necessity of adapting international financial reporting standards to the specific characteristics of local business environments. This consideration is especially pertinent in contexts where SMEs constitute a substantial portion of the corporate landscape. For many of these firms, the adoption of international standards—even in their simplified forms, such as IFRS for SMEs—can be prohibitively costly and operationally challenging.

Finally, from a corporate governance perspective, the study highlights the importance of strengthening accounting information systems to support the systematic collection and processing of financial data, thereby promoting more accurate and timely disclosure. Moreover, it emphasizes the critical role of the audit function as a key mechanism for enhancing compliance with disclosure requirements and improving the overall credibility of financial reporting.

8. Limitations and Future Research

The primary limitations of this study pertain to the characteristics of the sample. In Latin America—as in many other global economies—the business environment is predominantly composed of SMEs. However, the IFRS were originally developed with large, publicly listed corporations in mind. Consequently, our focus on listed firms operating within relatively small and underdeveloped capital markets excludes a substantial segment of the corporate landscape.

Moreover, SMEs in such markets are typically subject to limited stakeholder scrutiny and face reduced pressure to engage in signaling activities. Their compliance with IFRS disclosure requirements is, therefore, more likely to be driven by regulatory mandates rather than a proactive commitment to transparency. This dynamic may constrain both the scope and the depth of the information disclosed, limiting the analytical reach of our findings.

A further limitation concerns the number of accounting standards analyzed in the study. Future research could benefit from the development of disaggregated compliance indices that reflect the varying complexity and disclosure demands associated with each individual IFRS standard. Such granularity would allow for a more nuanced understanding of the standards’ implementation and their influence on financial reporting practices.

Additionally, extending the scope of analysis to include SMEs could yield valuable insights into how IFRS adoption impacts organizations with distinct structural and institutional characteristics. Unlike publicly listed companies, which are exposed to capital market pressures, SMEs are often influenced by coercive institutional forces, particularly legal and regulatory compliance requirements. In such cases, IFRS adoption may stem from mimetic isomorphism—i.e., the tendency to imitate peer behavior—rather than from an intrinsic objective to enhance transparency. These contrasting motivations may lead to divergent outcomes in IFRS application and effectiveness, thereby providing fertile ground for further scholarly research.

Another limitation may be focused on data analysis. The notes to financial statements contain useful complementary information that could be interesting to analyze using the discourse analysis technique, which involves performing a comprehensive text analysis to improve the results when evaluating the quantity and quality of the information disclosed.