How does financial reporting quality relate to investment efficiency?
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Verdi_How does.pdf
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267.08 KB
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Author(s)
Biddle, Gary C.
Hilary, Gilles
Verdi, Rodrigo
Date Issued
September 2009
Journal
Journal of Accounting and Economics
Publisher
Elsevier
Citation
Biddle, Gary C., Gilles Hilary, and Rodrigo S. Verdi. “How Does Financial Reporting Quality Relate to Investment Efficiency?.” Journal of Accounting and Economics 48.2-3 (2009) : 112-131. Copyright © 2009, Elsevier
Version
Author's final manuscript
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.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike 3.0
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DOI of Published Version
https://doi.org/10.1016/j.jacceco.2009.09.001
