Does International Accounting Standard No. 27 Improve Investment Efficiency?

摘要

We examine how the adoption of International Accounting Standard No. 27 (hereafter, IAS 27) consolidation rules affects firm-level investment efficiency. IAS 27, effective in Taiwan for fiscal years beginning after 2005, defines the "control" criteria for consolidated entities as majority control rights rather than majority financial ownership. IAS 27 discourages firms' ability to manage earnings through the use of unconsolidated entities and reduces information asymmetry between managers and shareholders. Consistent with the standard's intended objectives, we document that firms experience a significant increase in investment efficiency after adopting IAS 27. Firms subject to overinvestment (underinvestment) are more likely to reduce (increase) investment toward a more optimal level after IAS 27 adoption. We also find that foreign investors increase their shareholdings in Taiwanese firms after the adoption of IAS 27.