Information versus Investment

Stephen Terry, Toni Whited and Anastasia Zakolyukina

No 2020-110, Working Papers from Becker Friedman Institute for Research In Economics

Abstract: The accuracy of firm information disclosures and the efficiency of long-term investment both play crucial roles in the economy and capital markets. We estimate a dynamic model that captures a trade-off between these two goals that arises when managers confront realistic incentives to misreport financial statements and distort their real investment choices. Managers in our model distort reported profits by 6.7% of sales on average. Counterfactual analysis reveals that while eliminating this misreporting through disclosure regulation is possible, it incentivizes managers to distort real investment, which results in a 1% drop in average firm value, reflecting a quantitatively meaningfully tradeoff.

Keywords: Information; disclosure; r&d; growth (search for similar items in EconPapers)
JEL-codes: E22 G31 G34 K22 K42 M41 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2020
New Economics Papers: this item is included in nep-cfn, nep-fdg, nep-law and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Information versus Investment (2022)
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