Accounting choices under IFRS and their effect on over-investment in capital expenditures |
Posted on:2013-08-03 | Degree:Ph.D | Type:Dissertation |
University:The University of Iowa | Candidate:Mazboudi, Mohamad | Full Text:PDF |
GTID:1459390008968546 | Subject:Business Administration |
Abstract/Summary: | |
IFRS allows firms to choose between fair-value accounting and historical cost accounting with impairment testing for property, plant and equipment (PPE). This study examines the effect of firms' accounting choices for this group of non-financial assets on over-investment after IFRS mandatory adoption in the European Union (EU). My results indicate that over-investment in PPE (or capital expenditures) is lower following IFRS adoption among EU firms that used historical cost accounting with impairment testing in the post- IFRS period, consistent with EU firms having more timely loss recognition for PPE under IFRS strict impairment rules. In my analysis of United Kingdom (UK) firms, I find that most UK firms elected to use historical cost accounting with impairment testing for PPE after IFRS mandatory adoption. I also find that UK firms that previously used fair-value accounting under UK GAAP and then switched to historical cost accounting with impairment testing under IFRS exhibit greater reductions in over-investment relative to other EU firms that used historical cost accounting with impairment testing prior to IFRS adoption. Additional analysis suggests that the reductions in over-investment after IFRS mandatory adoption are greater as the severity of agency conflicts increases, consistent with outside shareholders demanding timely loss recognition as a means of addressing agency conflicts with managers. |
Keywords/Search Tags: | IFRS, Cost accounting with impairment testing, Historical cost accounting with impairment, Over-investment, EU firms, PPE |
|
Related items |