The Relation between Reporting Quality and Financing and Investment: Evidence from Changes in Financing Capacity
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
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
Date posted: September 24, 2011 ; Last revised: July 8, 2013
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