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. In contrast to prior findings for capital market effects of IFRS adoptions, associations between mandatory IFRS adoptions and capital investment efficiency are found to be stronger in countries with weaker legal protections, more concentrated ownership, and prior reporting standards that differ more from IFRS. Thus, our 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.
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