Abstract

http://ssrn.com/abstract=1703530
 
 

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Financing and Investment Efficiency, Information Quality, and Accounting Biases


Lin Nan


Purdue University

Xiaoyan Wen


University of Illinois at Chicago - College of Business Administration

November 27, 2013

UIC College of Business Administration Research Paper No. 10-14

Abstract:     
In this paper, we investigate the effect of accounting biases on firms' financing decisions and the role of accounting biases in endogenous information quality. We show that in industries with generally low-profit prospects, a downward-biased accounting system performs better than a neutral accounting system, and a more downward bias helps mitigate both investment and financing inefficiency; while for industries with generally high-profit prospects, an upward-biased accounting system is better than a neutral accounting system, and a more upward bias helps improve financing efficiency. In addition, we find that a more downward-biased accounting system motivates good firms to exert more effort to improve the information quality, which improves overall efficiency.

Number of Pages in PDF File: 35

Keywords: conservatism, capital structure, information quality

JEL Classification: G31, G32, M41

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Date posted: November 7, 2010 ; Last revised: November 28, 2013

Suggested Citation

Nan, Lin and Wen, Xiaoyan, Financing and Investment Efficiency, Information Quality, and Accounting Biases (November 27, 2013). UIC College of Business Administration Research Paper No. 10-14. Available at SSRN: http://ssrn.com/abstract=1703530 or http://dx.doi.org/10.2139/ssrn.1703530

Contact Information

Lin Nan
Purdue University ( email )
1310 Krannert Building
West Lafayette, IN 47907-1310
United States
7654944438 (Phone)
Xiaoyan Wen (Contact Author)
University of Illinois at Chicago - College of Business Administration ( email )
601 South Morgan Street
Chicago, IL 60607
United States
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