Auditor Opinion, IFRS Adoption and Macro Determinants of Financial Distress

Abstract

This study aims to investigate the impact of auditor opinion, IFRS adoption, and macro-level factors on financial distress using a sample of 221 non-financial UK manufacturing firms listed between 2014 and 2023. A panel fixed-effects regression model is applied to test the research hypotheses, with Altman’s Z-Score serving as a proxy for financial distress. The findings reveal a significant negative association between IFRS adoption and Altman’s Z-Score, while auditor opinion exhibits a significant positive relationship with the Z-Score. Additionally, strong evidence suggests that a composite measure of country-level index variables is significantly linked to higher financial distress. This paper makes a valuable contribution to the financial distress literature by addressing the limited research on the predictive role of IFRS adoption and auditor opinion in financial distress. Furthermore, by examining macro-level influences, this study adds to the existing literature, which predominantly focuses on firm-specific factors.