1、University of Iowa Iowa Research Online The s e s a nd Di s s e r t a t ion s 2012 Accoun t in g choices unde r IFR S a nd their effec t on o ve r -in ves tme n t in c a pit al ex p e nditur es M oh a m a d M a z b oudi University of Iowa C op y r i gh t 2012 M o h a m a d M a z boud i Thi s d i s s
2、 e r t a t ion i s a v ai l a b le a t I o w a R e s e a r ch Onl ine: h tt p:/ir . uio w a . e du/e t d/2941 F o l lo w thi s a nd a dd it ion al w ork s a t : h tt p:/ir . uio w a . e du/e t d P a r t of the B usine s s Admini s tr a t ion, M a n a g e me n t , a nd O pe r a t ion s C ommon s R e
3、c omme nde d C it a t ion M a z boud i , M o h a m a d . “ Ac c oun t in g cho ic e s unde r I FR S a nd their effe ct on o v e r -in v e s tme n t in ca p it al ex pe nd itur e s . “ P hD ( D oct or of P hi los op h y ) the si s, U niv e r sit y of I o w a , 2012. h tt p:/ir . uio w a . e du/e t d/
4、2941. 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
5、 Iowa May 2012 Thesis Supervisor: Professor Daniel Collins 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
6、 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 p
7、eriod, 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
8、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 IFR
9、S 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. Abs
10、tract Approved: _ Thesis Supervisor _ Title and Department _ Date ACCOUNTING CHOICES UNDER IFRS AND THEIR EFFECT ON OVER-INVESTMENT IN CAPITAL EXPENDITURES by Mohamad Mazboudi A thesis submitted in partial fulfillment of the requirements for the Doctor of Philosophy degree in Business Administration
11、 in the Graduate College of The University of Iowa May 2012 Thesis Supervisor: Professor Daniel Collins Copyright by MOHAMAD MAZBOUDI 2012 All Rights Reserved Graduate College The University of Iowa Iowa City, Iowa CERTIFICATE OF APPROVAL _ PH.D. THESIS _ This is to certify that the Ph.D. thesis of
12、Mohamad Mazboudi has been approved by the Examining Committee for the thesis requirement for the Doctor of Philosophy degree in Business Administration at the May 2012 graduation. Thesis Committee: _ Daniel Collins, Thesis Supervisor _ Douglas DeJong _ Paul Hribar _ Erik Lie _ Richard Mergenthaler i
13、i ACKNOWLEDGMENTS I wish to express my sincerest thanks to my dissertation chair, Professor Daniel Collins, for his valuable guidance and help during my time at the University of Iowa. I would also like to thank members of my dissertation committee, Professors Douglas DeJong, Paul Hribar, Erik Lie,
14、and Richard Mergenthaler, for their insights and assistance in improving my dissertation. Thanks are also owed to Matt Glendening, Dolf Kerklaan, Gerard Mertens, and workshop participants at the University of Iowa and at the American University of Beirut. The financial assistance of the Henry B. Tip
15、pie College of Business and the University of Iowa is gratefully acknowledged. I owe special thanks to my mom and my family for their continuous support and love. To my mom, I will be forever grateful for the many sacrifices she has made in order that this goal was attained. Above all and most of al
16、l, thanks and praises are owed to Allah, the one and only God and Creator, who gave me the health and strength to finish my Ph.D. and made everything easy for me. Responsibility of any errors accrues solely to me. iii TABLE OF CONTENTS LIST OF TABLES iv LIST OF FIGURES v CHAPTER I. INTRODUCTION 1 II
17、. RELATED LITERATURE AND HYPOTHESES DEVELOPMENT 10 2.1 Related Literature 10 2.1.1 Timely Loss Recognition and Over-investment 10 2.1.2 Accounting Choices for PPE before and after IFRS 12 2.2 Hypotheses Development 16 III. MEASURES, RESEARCH DESIGN, AND SAMPLE SELECTION 18 3.1 Measures of Over-inves
18、tment 18 3.2 Research Design 19 3.3 Sample Selection 21 3.3.1 Total Sample 21 3.3.2 Sub-samples based on Accounting Choices 23 IV. RESULTS 25 4.1 Preliminary Results 25 4.1.1 The Frequency of Impairment Losses for PPE before and after IFRS Adoption 25 4.1.2 Asymmetric Timeliness of Loss Recognition
19、26 4.2 Main Results 28 4.2.1 Test of H1 28 4.2.2 Test of H2 29 4.2.3 The Effect of the Economic Downturn and other Institutional Factors 31 V. SUPPLEMENTAL TEST 34 VI. CONCLUSION 37 APPENDIX A. LIST OF VARIABLE DEFINITIONS 39 APPENDIX B. EXAMPLES OF IMPAIRMENT DISCLOSURES 41 APPENDIX C. FIGURES AND
20、TABLES 43 REFERENCES 54 iv LIST OF TABLES Table C1. Comparison of Impairment Rules for PPE between IFRS and Domestic GAAP 45 C2. Distribution by Country Watts 2003; Ball and Shivakumar 2005; Francis and Martin 2010). Timely loss recognition allows outside suppliers of capital to monitor managerial p
21、erformance and discipline managers tendency to over- invest in a more timely manner (Francis and Martin 2010). If managers know, ex-ante, that economic losses will be recognized in a timely manner, they are less likely to engage 2 in value-destroying activities, such as empire building. 1Further, ti
22、mely loss recognition increases the incentives of managers to quickly abandon losing investments. Economic losses from losing investments will have negative earnings consequences and, thus, will reduce managers earnings-based compensations and, consequently, their job security. 2Francis and Martin (
23、2010) show that firms with more timely loss recognition pursue more profitable acquisitions and make better ex-post divestiture decisions. In a related study, Srivastava et al. (2010) find that timely loss recognition increases the likelihood of timely closures of unprofitable projects. Using data f
24、rom twenty-five countries, Bushman et al. (2011) find that timely loss recognition disciplines managers who are confronted with declining investment opportunities (i.e., investments in ex-ante value-destroying projects). Furthermore, other studies show that timely loss recognition reduces agency con
25、flicts between managers and outside shareholders (e.g., LaFond and Roychowdhury 2008; LaFond and Watts 2008; Ahmed and Duellman 2010). These studies provide evidence consistent with timely loss recognition being part of a firms governance structure that results in better managerial investment decisi
26、ons. A number of prior studies examine whether adoption of IFRS leads to more timely loss recognition. The findings are mixed and inconclusive. For example, Barth et al. (2008) find an increase in timely loss recognition following firms voluntary adoption of IAS/IFRS over the 1994-2003 period. 3Howe
27、ver, Barth et al. (2008) do not account for managers incentives and prior research (e.g., Christensen et al. 2008) shows that benefits from IAS/IFRS adoption are highly dependent on managers incentives to voluntarily 1Jensen (1986) argues that managers have incentives to expand the firm beyond its o
28、ptimal size because (1) this increases the resources under managerial control and (2) executive compensation is positively related to firm size. 2Warner et al. (1988) show that managers bonuses and job tenure are a function of reported earnings. 3International Accounting Standards (IAS) were issued
29、by the International Accounting Standards Committee (IASC). The International Accounting Standards Board (IASB), the successor body to the IASC, issues IFRS that include standards issued by the IASC. 3 adopt IAS/IFRS. Further, Barth et al.s (2008) findings may not apply to mandatory adopters of IFRS
30、 in 2005 because IAS/IFRS standards changed considerably from the early adoption period to the mandatory adoption period (Capkun et al. 2011a). In contrast to Barth et al. (2008), Ahmed et al. (2010) find less timely loss recognition following IFRS mandatory adoption relative to a control sample of
31、firms that did not adopt IFRS standards. However, their control sample is largely comprised of U.S. firms and we know from prior research (e.g., Givoly and Hayn 2000; Barth et al. 2012) that relative to international accounting standards, U.S. GAAP has become more conservative (i.e., more timely los
32、s recognition) over time. Unlike Barth et al. (2008) and Ahmed et al. (2010), I do not include in my study firms that were allowed to voluntarily adopt IFRS and I examine EU firms only in the pre- and post-IFRS periods. In addition, I examine timely loss recognition for PPE by exploiting a setting w
33、here firms have changed their accounting treatment for PPE from one that is less conservative (fair-value accounting or historical cost accounting with loose impairment rules) to another that is more conservative (historical cost accounting with strict impairment rules). For measuring PPE, IFRS offe
34、rs two alternative treatments: historical cost or fair value (revaluation). Under historical cost accounting, assets are recognized at acquisition cost and then tested for impairment (write-down). Under fair-value accounting, assets are recognized at acquisition cost and then revalued to fair value
35、both up and down. 4Christensen and Nikolaev (2010) show that after mandatory adoption of IFRS in United Kingdom (UK) and Germany, most firms chose historical cost accounting with impairment testing for PPE. They also find more historical cost accounting with impairment testing (i.e., less fair-value
36、 accounting) for PPE in the post-IFRS period 4IFRS defines fair value as the amount for which an asset could be exchanged, a liability settled, or an equity instrument granted could be exchanged, between knowledgeable, willing parties in an arms length transaction (IFRS 2.A). 4 relative to the pre-I
37、FRS period among UK firms that had the option to use fair-value accounting for PPE in the pre-IFRS period. Furthermore, in its report to the European Commission in 2007, the Institute of Chartered Accountants in England and Wales (ICAEW) documents that the majority of firms in the EU elected to use
38、a historical cost model rather than a fair-value model to measure non-financial assets following mandatory IFRS adoption. IFRS, under IAS 36 (Impairment of Assets), requires regular impairment testing for PPE and provides detailed procedures for determining when asset impairment occurs and for measu
39、ring the amount of impairment. Further, IFRS requires impairment testing procedures be disclosed in the notes to the financial statements. On the other hand, most EU countries domestic GAAP did not have detailed impairment testing procedures for PPE during the pre-IFRS period and impairment testing
40、procedures were less transparent to investors and outside shareholders. In addition, given that EU firms are subject to the same impairment rules after IFRS mandatory adoption, impairment testing is more comparable among EU firms and managers have less discretion in measuring and reporting impairmen
41、t losses. Overall, IFRS, under IAS 36, has more informative, more transparent, and more comparable impairment rules (i.e., strict impairment rules) for PPE relative to EU countries domestic GAAP that had loose (i.e., less strict) impairment rules. 5Therefore, I predict that firms that used historica
42、l cost accounting with impairment testing in the post-IFRS period will exhibit a reduction in over-investment in PPE after IFRS adoption relative to pre-adoption levels because of more timely recognition of impairment losses under IFRS strict impairment rules. 5This argument is consistent with the I
43、nternational Accounting Standards Boards (IASB) objective: “ to develop, in the public interest, a single set of high quality, understandable and enforceable global accounting standards that require high quality, transparent and comparable information in financial statements and other financial reporting to help participants in the worlds capital markets and other users make economic decisions (International Accounting Standards Committee (IASC) Foundation, Constitution Part A.2).”
