Abstract

http://ssrn.com/abstract=1146536
 
 

References (55)



 
 

Citations (43)



 


 



How Does Financial Reporting Quality Relate to Investment Efficiency?


Gary C. Biddle


The University of Hong Kong

Gilles Hilary


INSEAD

Rodrigo S. Verdi


Massachusetts Institute of Technology (MIT)

July 2009

Journal of Accounting & Economics (JAE), December 2009

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 macroeconomic 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.

Number of Pages in PDF File: 49

Keywords: Financial Reporting Quality, Investment Efficiency, Accounting Quality, Adverse Selection, Moral Hazard

JEL Classification: G30, G31, M41, M43, D82

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Date posted: December 1, 2010 ; Last revised: October 3, 2012

Suggested Citation

Biddle, Gary C. and Hilary, Gilles and Verdi, Rodrigo S., How Does Financial Reporting Quality Relate to Investment Efficiency? (July 2009). Journal of Accounting & Economics (JAE), December 2009. Available at SSRN: http://ssrn.com/abstract=1146536 or http://dx.doi.org/10.2139/ssrn.1146536

Contact Information

Gary C. Biddle (Contact Author)
The University of Hong Kong ( email )
1213 KK Leung Building
Pokfulam
Hong Kong
China
+852 3917-4388 (Phone)
+852 2858-5614 (Fax)
HOME PAGE: http://www.fbe.hku.hk/Aboutus/Staff_Detail.cfm?StaffID=315
Gilles Hilary
INSEAD ( email )
Boulevard de Constance
77305 Fontainebleau Cedex
France
Rodrigo S. Verdi
Massachusetts Institute of Technology (MIT) ( email )
Sloan School of Management
100 Main Street E62-679
Cambridge, MA 02142
United States
(617) 253 2956 (Phone)
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