Earnings quality, business group affiliation, and investment efficiency

Savita Rawat and Neeru Chaudhry

Research in International Business and Finance, 2025, vol. 75, issue C

Abstract: This paper examines the effect of earnings quality and business group affiliation on.investment decisions through theoretical channels of agency and information.asymmetry. Using a dataset of 18,927 firm-year observations covering the period.1997–2021, we find that both earnings quality and business group affiliation improve.investment efficiency by reducing both over- and underinvestment. The positive.relation between earnings quality and investments is more pronounced for group.affiliates than for standalone firms suggesting the alignment effect outreaches.entrenchment effect. Business group characteristics such as size, age, group.resources, and cash flow rights significantly influence the relationship between.earnings quality and investment. The robustness checks conducted, using alternate.measures, the effect of political connection, and endogeneity checks, further confirm.our main findings. Our findings highlight the complementary role of earnings quality.and business groups in mitigating agency conflicts and improving resource allocation in.an emerging country setting marked by a less developed financial market and weak.legal protection. The study offers novel insights with practical implications for.managers, investors, and policymakers in emerging markets, highlighting the.importance of transparent reporting and a unique organizational structure in driving investment efficiency

Keywords: Earnings quality; Investment efficiency; Business groups; Internal capital market; Tunneling (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0275531924005257
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:75:y:2025:i:c:s0275531924005257

DOI: 10.1016/j.ribaf.2024.102732

Access Statistics for this article

Research in International Business and Finance is currently edited by T. Lagoarde Segot

More articles in Research in International Business and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().