Accounting choices under ifrs and their effect on over-investment in capital expenditures
The Effect of the Economic Downturn
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4.2.3 The Effect of the Economic Downturn and other Institutional Factors The economic downturn in the EU during the post- IFRS period could lead managers to recognize losses on investments more quickly. Hence, the economic downturn could result in more efficient investment decisions (i.e., reduction in over- investment). If the reduction in over-investment is indeed an economic downturn effect, then I expect non-significant differences in over-investment between HL_HS firms and 32 FV_HS firms after IFRS adoption. However, the difference-in-differences and the multivariate results presented in Tables C6 and C7 suggest that FV_HS firms exhibit greater reductions in over-investment after IFRS adoption relative to HL_HS firms. These greater reductions in over-investment cannot be attributed to the economic downturn because all EU firms (or at least the majority of them) were facing deteriorating economic conditions after IFRS adoption. To further address the economic downturn effect, I examine the reduction in over- investment among UK firms only because UK firms were subject to the same downturn in the UK economy after IFRS adoption. In addition, examining only UK firms controls for other institutional factors, such as regulatory and enforcement mechanisms, that affect how rigorously IFRS standards are implemented. Table C8 presents the multivariate results based on equation (7) of the effect on over-investment in PPE among UK firms only. The estimated β 3 coefficient that captures the reduction in over-investment among HL_HS firms (67 UK firms – Panel B of Table C3) is negative although insignificant. 36 If the economic downturn and other institutional factors in the UK are the causes for the reduction in over-investment in the post- IFRS period, then I expect no significant differences in over-investment between FV_HS firms (30 UK firms – Panel B of Table C3) and HL_HS firms. However, the estimated β 7 coefficient on the interaction between IFRS , FV_HS , and OVER_INV is significantly negative (-0.8284; p < 0.05). Hence, my findings in this sub-section mitigate the concern that the reduction in over-investment after IFRS adoption is an effect attributed to the economic downturn or to other institutional factors. Rather, my results suggest that the reduction in over-investment following IFRS adoption among UK firms, in particular FV_HS firms, is driven by the 36 Relative to most EU countries’ domestic GAAP, UK GAAP is considered to have more guidance for impairment testing. This could be one explanation for having a non-significant β 3 coefficient when only UK firms are examined. 33 disciplining effect on managers of these UK firms after using historical cost accounting with strict impairment rules under IFRS . 34 CHAPTER V SUPPLEMENTAL TEST In this chapter, I examine whether the level of managerial ownership in firms affects over-investment in Yüklə 0,76 Mb. Dostları ilə paylaş:
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