The Effect of International Financial Reporting Standards Adoption on Credit Markets: Do User Incentives Make a Difference?

ABSTRACT User incentives influence decision‐making in credit markets; however, the influence of incentives on the credit relevance of International Financial Reporting Standards (IFRS) remains unexplored. This study examines how competition among credit rating agencies in Japan, where firms can choose between single or multiple ratings when issuing bonds, shapes their incentives. The findings reveal that competition‐driven incentives to build and maintain reputational capital enhance agencies' efforts to gather, process, and effectively use IFRS data. This study highlights the role of user incentives, particularly those arising from competition, in shaping the impact of IFRS adoption on credit markets.