Discussion of 'Unrealised earnings, dividends and reporting aggressiveness: an examination of firms' behavior in the era of fair value accounting'

This article discusses the paper by Chen and Gavious (2016). Chen and Gavious (2016) investigate the change in dividend payouts after mandatory adoption of International Financial Reporting Standards (IFRS') in Israel. They find that some Israeli firms distributed cash dividends out of unrealized earnings from financial instruments and investment properties due to the application of fair value accounting under IFRS. They further find that these firms manipulated both book and tax income to increase the dividend payouts. This discussion focuses on the theoretical development in the impact of IFRS adoption on corporate incentive for dividend payouts and the costs of earnings management for dividend distribution. This discussion also offers suggestions on how to improve the empirical design and analyses.