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http://ssrn.com/abstract=1932349
 
 

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The Relation between Reporting Quality and Financing and Investment: Evidence from Changes in Financing Capacity


Karthik Balakrishnan


London Business School

John E. Core


Massachusetts Institute of Technology (MIT) - Sloan School of Management

Rodrigo S. Verdi


Massachusetts Institute of Technology (MIT)

July 3, 2013


Abstract:     
We use changes in the value of a firm’s real estate assets as an exogenous change in a firm’s financing capacity to examine (i) the relation between reporting quality and financing and investment conditional on this change, and (ii) firms’ reporting quality responses to the change in financing capacity. We find that financing and investment by firms with higher reporting quality is less affected by changes in real estate values than are financing and investment by firms with lower reporting quality. Further, firms increase reporting quality in response to decreases in financing capacity. Our findings contribute to the literature on reporting quality and investment, and on the determinants of reporting quality choices.

Number of Pages in PDF File: 52

Keywords: Reporting quality, investment, collateral, financing constraints

JEL Classification: D20, E51, G30, G31, G32, M41

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Date posted: September 24, 2011 ; Last revised: July 8, 2013

Suggested Citation

Balakrishnan, Karthik and Core, John E. and Verdi, Rodrigo S., The Relation between Reporting Quality and Financing and Investment: Evidence from Changes in Financing Capacity (July 3, 2013). Available at SSRN: http://ssrn.com/abstract=1932349 or http://dx.doi.org/10.2139/ssrn.1932349

Contact Information

Karthik Balakrishnan
London Business School ( email )
Sussex Place
Regent's Park
London, NW1 4SA
United Kingdom
John E. Core
Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )
77 Massachusetts Ave.
E62-416
Cambridge, MA 02138
United States
Rodrigo S. Verdi (Contact Author)
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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