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How does financial reporting quality relate to investment efficiency?

Gary C. Biddle, Gilles Hilary and Rodrigo S. Verdi

Journal of Accounting and Economics, 2009, vol. 48, issue 2-3, 112-131

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.

Keywords: Financial; reporting; quality; Capital; investment (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (670)

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Working Paper: How Does Financial Reporting Quality Relate to Investment Efficiency? (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:48:y:2009:i:2-3:p:112-131

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