Abstract

This study provides evidence regarding the effect of mandatory K－IFRS adoption on capital investment efficiency using a sample of KOSPI－listed non－financial firms between 2000 and 2018. Further, the study analyzes whether the positive relationship between the degree of over－investment and the future stock price crash risk is attenuated after the K－IFRS adoption. The empirical results are as follows：First, K－IFRS adoption is positively associated with investment efficiency whereas negatively association with over－investment level (tendency). The proxy of the investment efficiency in this study is the residual variable derived from the McNichols and Stubben(2008). Second, the evidence shows that the negative relationship between the over－investment level(tendency) and the future crash risk is attenuated after the K－IFRS adoption, suggesting fair value accounting under K－IFRS is more likely to recognize the loss from the bad projects, providing investors with an early warning mechanism. Whereas most of the previous studies focus on the impact of IFRS on financial markets, this paper provides the real economic consequences in terms of firms’ investment decision－making. In addition, by examining crash risk, the paper contributes to research examining the impact of accounting standards on asset pricing and tail events.

Keywords

• K－IFRS
• Investment efficiency
• Stock price crash risk
• Over－investment

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