The Impact of IFRS on the Relationship between Conservatism and Investment Efficiency

Comptabilité Contrôle Audit, Forthcoming

33 Pages Posted: 7 Jan 2015

See all articles by Paul André

Paul André

HEC Lausanne

Andrei Filip

ESSEC Business School

Sophie Marmousez

HEC Montreal

Date Written: January 6, 2015


We test to see whether a higher degree of conservatism is associated with greater investment efficiency (reducing over- and under-investment) for a sample of French firms before and after the mandatory adoption of IFRS in 2005. While a theoretical link between conservatism and investment efficiency is easily established, the question is whether this link still remains after the adoption of IFRS, which are generally considered to reduce conservatism. Empirical tests find a significant decrease in conservatism after IFRS adoption. This result is consistent with the results reported by Piot et al. (2011), Ahmed et al. (2013) and André et al. (2013). Our results show that in the pre-IFRS period, conservatism limited over- and under-investment. For the post-IFRS period, however, conservatism does not seem to play any role in improving investment efficiency. This paper contributes to the academic and regulatory debate over the economic consequences of the qualitative characteristics of useful financial information and the impact of IFRS adoption. The adoption of IFRS has certainly led to a new equilibrium between the various qualitative characteristics of financial information, but the costs and benefits of that equilibrium remain difficult to measure.

Keywords: Conservatism, Earnings quality, Investment effeciency, Over- and Under-investment, IFRS, France

JEL Classification: M41, G31

Suggested Citation

Andre, Paul and Filip, Andrei and Marmousez, Sophie, The Impact of IFRS on the Relationship between Conservatism and Investment Efficiency (January 6, 2015). Comptabilité Contrôle Audit, Forthcoming, Available at SSRN:

Paul Andre (Contact Author)

HEC Lausanne ( email )

Lausanne, 1015

Andrei Filip

ESSEC Business School ( email )

3 Avenue Bernard Hirsch
CS 50105 CERGY
+33 1 34 43 33 61 (Phone)

Sophie Marmousez

HEC Montreal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H2X 2L3
+15143406605 (Phone)

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