Do Adoptions of International Financial Reporting Standards Enhance Capital Investment Efficiency?

49 Pages Posted: 16 Nov 2013 Last revised: 8 Apr 2017

See all articles by Gary C. Biddle

Gary C. Biddle

University of Melbourne - Faculty of Business and Economics; Columbia University - Columbia Business School; London Business School; University of Melbourne; The University of Hong Kong

Carolyn M. Callahan

University of Louisville - College of Business

Hyun A. Hong

University of California, Riverside (UCR) - A. Gary Anderson Graduate School of Management

Robin Knowles

Texas State University

Date Written: November 14, 2016

Abstract

We examine whether adoptions of International Financial Reporting Standards (IFRS) enhance capital investment efficiency as measured by investment-cash flow sensitivity and value-enhancing risk taking for a comprehensive sample comprised of 10,340 mandatory and voluntary IFRS adoptions across 26 countries during the pre-financial crisis period of 2001-08. Our results reveal a positive association between mandatory IFRS adoptions and capital investment efficiency. In contrast to prior findings for capital market effects, this association is stronger in countries with weaker legal protections, more concentrated ownership, and prior reporting standards that differ more from IFRS. These findings lend support to mandatory but not voluntary IFRS adoptions serving to enhance firm-level capital investment efficiency, particularly in countries with weaker investor protections that mitigate capital market effects, with implications for standards setters, regulators and research design.

Keywords: IFRS adoption; capital investment efficiency; financial disclosure; information asymmetry; comparability of accounting information

JEL Classification: M41, G32, G33

Suggested Citation

Biddle, Gary C. and Callahan, Carolyn M. and Hong, Hyun A. and Knowles, Robin, Do Adoptions of International Financial Reporting Standards Enhance Capital Investment Efficiency? (November 14, 2016). Available at SSRN: https://ssrn.com/abstract=2353693 or http://dx.doi.org/10.2139/ssrn.2353693

Gary C. Biddle (Contact Author)

University of Melbourne - Faculty of Business and Economics ( email )

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Carolyn M. Callahan

University of Louisville - College of Business ( email )

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Hyun A. Hong

University of California, Riverside (UCR) - A. Gary Anderson Graduate School of Management ( email )

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Robin Knowles

Texas State University ( email )

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