Journal of Accounting and Economics Vol. 48 No. 2-3 2009
How does financial reporting quality relate to investment efficiency?
Abstract
Prior evidence that higher-quality financial reporting improves capital investment efficiency leaves unaddressed whether it reduces over- or under-investment. This study provides evidence of both in documenting a conditional negative (positive) association between financial reporting quality and investment for firms operating in settings more prone to over-investment (under-investment). Firms with higher financial reporting quality also are found to deviate less from predicted investment levels and show less sensitivity to macro-economic conditions. These results suggest that one mechanism linking reporting quality and investment efficiency is a reduction of frictions such as moral hazard and adverse selection that hamper efficient investment.
- DOI
- 10.1016/j.jacceco.2009.09.001
- Volume
- 48
- Issue
- 2-3
- Pages
- 112-131
- Language
- en
- Sources
- bibtex:phds-export.bib openalex openalex crossref