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

Panel B: Descriptive Statistics
Variable
Obs
Mean
Std Dev
25th Pctl
Median
75th Pctl
CAPEX
2,568
-3.3539
1.0333
-3.9294
-3.2397
-2.7011
IFRS
2,568
0.5000
0.5001
0.0000
0.5000
1.0000
OVER_INV
2,568
0.5034
0.2896
0.2500
0.5000
0.7500
SIZE
2,568
6.4753
2.3078
4.8709
6.5003
8.1374
TANGIBILITY
2,568
0.4950
0.3655
0.1879
0.4155
0.7339
CFO_SALE
2,568
0.0807
0.5252
0.0428
0.0860
0.1463
MTB
2,568
2.9128
5.0139
0.9800
1.2450
2.3530
OPERATING_CYCLE
2,568
4.8821
0.6643
4.5400
4.9118
5.2000
DIV
2,568
0.7948
0.4039
1.0000
1.0000
1.0000
LOSS
2,568
0.1881
0.3909
0.0000
0.0000
0.0000
CAP_STRUCTURE
2,568
0.1991
0.2126
0.0175
0.1190
0.3353
Z_SCORE
2,568
5,324
12,806
222
885
3,499
CLOSELY_HELD
2,568
35.8187
25.8004
13.4653
33.1816
54.8059
BIG4_5
2,568
0.8131
0.3899
1.0000
1.0000
1.0000
This table reports the distribution by country and industry and descriptive statistics for all variables. The sample includes 2,568 
firm-years from 2000 to 2009 in 9 EU countries. For variable definitions, see "List of Variable Definitions" in Appendix A. 
 
 
 

---

47 
TABLE C3 
Accounting Choices for PPE under UK GAAP and IFRS
 
_________________________________________________________________________________________________________________________________________ 
 
Panel A: Accounting Choices by UK firms
Accounting Choice
Firms
Firm-years
%
Firms
Firm-years
%
Historical Cost
68
272
67%
97
388
96%
Fair Value
33
132
33%
4
16
4%
Total
101
404
100%
101
404
100%
Panel B: Switching between Accounting Choices by UK firms
UK GAAP
IFRS
Firms
Firm-years
%
Historical Cost
to
Historical Cost
67
536
66%
Fair Value
to
Historical Cost
30
240
30%
Fair Value
to
Fair Value
3
24
3%
Historical Cost
to
Fair Value
1
8
1%
Total
101
808
100%
IFRS
UK GAAP
This table presents in Panel A the accounting choices for PPE under UK GAAP and IFRS and in Panel B how UK firms switched between 
accounting choices upon the mandatory adoption of IFRS in 2005. The sample includes 101 UK firms (808 firm-years).

---

48 
TABLE C4 
Asymmetric Timeliness of Loss Recognition after IFRS
Mandatory Adoption
________________________________________________________________________ 
Pred. Sign
Coefficient
t-stat
P-value
Intercept
+/-
-0.0027
-0.24
0.8100
D
+/-
0.0299 **
2.57
0.0108
RET
+/-
-0.1286 ***
-4.45
<.0001
D*RET
+
0.1290 ***
4.32
<.0001
IFRS
+/-
0.0320 **
2.13
0.0340
IFRS*D
+/-
-0.0412 *
-1.89
0.0598
IFRS*RET
+/-
-0.0233
-0.48
0.6302
IFRS*D*RET
+
0.0214
0.43
0.3338
Observations
Adjusted R
2
2,523
2.64%
This table presents the OLS regression estimates based on equation (6), where EARN* is the residual from 
regressing EARN on country and industry fixed effects. ***, **, * denote significance at the 1%, 5%, and 10% 
levels, respectively. P-values are one-tailed when a directional prediction is made. Statistics for all variables are 
from firm-years between 2000 and 2009. Standard errors are clustered at the firm-level. For variable 
definitions, see "List of Variable Definitions" in Appendix A.
EARN*
it
 = 
α
0
 + 
α
1
D
it
 + 
α
2
RET
it
 + 
α
3
D
it
* RET
it
 + 
α
4
IFRS
it
+ 
α
5
IFRS
it
* D
it
 + 
α
6
IFRS
it
* RET
it
 + 
α
7
IFRS
it
* D
it
* RET
it
 + u
it
(6)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

---

49 
TABLE C5 
Multivariate Analysis of the Effect on Over-investment
after IFRS Mandatory Adoption
 
________________________________________________________________________ 
Pred. Sign
Coefficient
t-stat
P-value
Intercept
+/-
-4.1853 ***
-7.76
<.0001
IFRS 
+/-
0.0153
0.26
0.7985
OVER_INV
+
0.5631
0.75
0.2256
IFRS*OVER_INV 
-
-0.3870
***
-3.53
0.0003
SIZE
+
0.0556 **
1.93
0.0271
TANGIBILITY
+
0.8851 ***
6.33
<.0001
CFO_SALE
+/-
0.4997
1.52
0.1292
OPERATING_CYCLE
+/-
-0.1246
-1.49
0.1374
DIV
+/-
-0.0474
-0.42
0.6718
MTB
+
0.0366 ***
2.98
0.0016
LOSS
-
-0.2777 ***
-2.77
0.0030
CAP_STRUCTURE
+/-
0.0847
0.42
0.6783
Z_SCORE
-
0.0000 **
-1.66
0.0492
CLOSELY_HELD
+/-
0.0005
0.28
0.7778
BIG4_5
+/-
0.2338 *
1.76
0.0790
SIZE*OVER_INV
-
-0.0120
-0.25
0.4011
TANGIBILITY*OVER_INV
+
1.0107 ***
3.92
0.0001
CFO_SALE*OVER_INV
+/-
-0.4669
-1.09
0.2782
OPERATING_CYCLE*OVER_INV
+/-
-0.1123
-0.86
0.3912
DIV*OVER_INV
+/-
0.2545
1.29
0.1967
MTB*OVER_INV
+/-
-0.0251 *
-1.68
0.0942
LOSS*OVER_INV
+/-
-0.1524
-0.87
0.3870
CAP_STRUCTURE*OVER_INV
+/-
-0.6532 *
-1.76
0.0786
Z_SCORE*OVER_INV
+
0.0000 **
1.69
0.0458
CLOSELY_HELD*OVER_INV
-
0.0001
0.03
0.4873
BIG4_5*OVER_INV
-
-0.3430 *
-1.44
0.0759
Country Fixed Effects
Industry Fixed Effects
Observations
Adjusted R
2
CAPEX
it
 = β
0
 + β
1
IFRS
it
 + β
2
OVER_INV
it
 + β
3
IFRS
it
* OVER_INV
it
 + β
4-14
CONTROLS
it
+ β
15-25
CONTROLS
it
 * OVER_INV
it
 + ε
it 
Yes
50.03%
This table presents the OLS regression estimates of the effect on over-investment of PPE after IFRS 
mandatory adoption. ***, **, * denote significance at the 1%, 5%, and 10% levels, respectively. P-values are 
one-tailed when a directional prediction is made. Statistics for all variables are from firm-years between 2000 
and 2009 in 9 EU countries. The model includes country and industry fixed effects. Standard errors are 
clustered at the firm-level. For variable definitions, see "List of Variable Definitions" in Appendix A. 
Yes
2,568
(4)
 

---

50 
TABLE C6 
Univariate Analysis using Difference-in-Differences of the Effect on Over-investment
between HL_HS firms and FV_HS firms
 
______________________________________________________________________________________________ 
 
 
Prediction for Difference N Mean CAPEX Pre_IFRS Mean CAPEX Post_IFRS Difference (Post-Pre)
t-stat
P-value
Post < Pre
36
-3.7996
-4.5750
-0.7754 ***
-2.74
0.0042
Post < Pre
400
-3.5990
-3.9208
-0.3218 ***
-4.31
<.0001
-
-0.4536 **
-2.31
0.0164
Difference
FV_HS firms
HL_HS firms
Accounting Choices (Pre_Post)
 
 

 
 
 
 
 
 
 
 
 
 
This table presents the univariate analysis using difference-in-differences of the effect on over-investment for firms that used historical cost 
accounting with loose impairment rules (HL) under domestic GAAP and historical cost accounting with strict impairment rules (HS) under IFRS 
relative to firms that used fair-value accounting (FV) under domestic GAAP and then switched to historical cost accounting with strict impairment 
rules (HS) under IFRS. This table includes firms that are more likely to over-invest. ***, **, * denote significance at the 1%, 5%, and 10% levels, 
respectively. P-values are one-tailed when a directional prediction is made.

---

51 
TABLE C7 
Multivariate Analysis of the Effect on Over-investment
for HL_HS firms and FV_HS firms 
________________________________________________________
 
Pred. Sign
Coefficient
t-stat
P-value
Intercept
+/-
-4.1482 ***
-7.79
<.0001
IFRS 
+/-
-0.0040
-0.06
0.9488
OVER_INV
+
0.4099
0.55
0.2923
IFRS*OVER_INV 
-
-0.3332 ***
-2.98
0.0016
FV_HS
+/-
-0.4357 **
-2.39
0.0173
IFRS*FV_HS
+/-
0.2388
1.13
0.2577
FV_HS*OVER_INV
+/-
0.6233 **
2.07
0.0390
IFRS*FV_HS*OVER_INV
-
-0.6852 **
-1.81
0.0354
SIZE
+
0.0544 **
1.92
0.0281
TANGIBILITY
+
0.8782 ***
6.23
<.0001
CFO_SALE
+/-
0.5024
1.54
0.1252
OPERATING_CYCLE
+/-
-0.1301
-1.58
0.1153
DIV
+/-
-0.0282
-0.25
0.8011
MTB
+
0.0359 ***
2.91
0.0020
LOSS
-
-0.2922 ***
-2.94
0.0018
CAP_STRUCTURE
+/-
0.1229
0.61
0.5416
Z_SCORE
-
0.0000 **
-1.82
0.0350
CLOSELY_HELD
+/-
0.0001
0.08
0.9329
BIG4_5
+/-
0.2409 *
1.86
0.0632
SIZE*OVER_INV
-
-0.0077
-0.16
0.4363
TANGIBILITY*OVER_INV
+
1.0100 ***
3.89
0.0001
CFO_SALE*OVER_INV
+/-
-0.4722
-1.11
0.2699
OPERATING_CYCLE*OVER_INV
+/-
-0.0956
-0.73
0.4630
DIV*OVER_INV
+/-
0.2262
1.14
0.2550
MTB*OVER_INV
+/-
-0.0238
-1.59
0.1119
LOSS*OVER_INV
+/-
-0.1359
-0.78
0.4379
CAP_STRUCTURE*OVER_INV
+/-
-0.7003 *
-1.91
0.0565
Z_SCORE*OVER_INV
+
0.0000 **
1.74
0.0411
CLOSELY_HELD*OVER_INV
-
0.0007
0.18
0.4275
BIG4_5*OVER_INV
-
-0.3438 *
-1.45
0.0743
Country Fixed Effects
Industry Fixed Effects
Observations
Adjusted R
2
This table presents the OLS regression estimates of the effect on over-investment for firms that used 
historical cost accounting with loose impairment rules (HL) under domestic GAAP and historical cost 
accounting with strict impairment rules (HS) under IFRS relative to firms that used fair-value accounting 
(FV) under domestic GAAP and then switched to historical cost accounting with strict impairment rules 
(HS) under IFRS. ***, **, * denote significance at the 1%, 5%, and 10% levels, respectively. P-values 
are one-tailed when a directional prediction is made. Statistics for all variables are from firm-years 
between 2000 and 2009. The model includes country and industry fixed effects. Standard errors are 
clustered at the firm-level. For variable definitions, see "List of Variable Definitions" in Appendix A.
50.24%
Yes
Yes
2,568
CAPEX
it
 = β
0
 + β
1
IFRS
it
 + β
2
OVER_INV
it
 + β
3
IFRS
it
* OVER_INV
it
 + β
4
FV_HS
it
 + 
+ β
5
IFRS
it
 * FV_HS
it
 + β
6
FV_HS
it 
* OVER_INV
it
 + β
7
IFRS
it
 * FV_HS
it
 * OVER_INV
it
+ β
8-18
CONTROLSit + β
19-29
CONTROLS
it
 * OVER_INV
it
 + ε
it 
(7)
 

---

52 
TABLE C8 
Multivariate Analysis of the Effect on Over-investment among UK firms