Accounting choices under ifrs and their effect on over-investment in capital expenditures

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Accounting choices under IFRS and their effect
on over-investment in capital expenditures
Mazboudi, Mohamad
https://iro.uiowa.edu/esploro/outputs/doctoral/Accounting-choices-under-IFRS-and-their/9983776723002771/filesAndLinks?index=0
Mazboudi, M. (2012). Accounting choices under IFRS and their effect on over-investment in capital
expenditures [University of Iowa]. https://doi.org/10.17077/etd.sj215cbh
Downloaded on 2023/11/09 06:04:00 -0600
Copyright 2012 Mohamad Mazboudi
Free to read and download
https://iro.uiowa.edu
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ACCOUNTING CHOICES UNDER IFRS AND THEIR EFFECT 
ON OVER-INVESTMENT IN CAPITAL EXPENDITURES 
by 
Mohamad Mazboudi 
An Abstract 
Of a thesis submitted in partial fulfillment
of the requirements for the Doctor of
Philosophy degree in Business Administration
in the Graduate College of 
The University of Iowa 
May 2012 
Thesis Supervisor: Professor Daniel Collins 
 

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1 
ABSTRACT 
 
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.
Abstract Approved: __________________________________________ 
Thesis Supervisor 
__________________________________________ 
Title and Department 
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Date