Information Frictions and Productivity Dispersion: The Role of Accounting Information

The Accounting Review, Forthcoming

59 Pages Posted: 29 Jun 2017 Last revised: 12 Aug 2019

See all articles by Rebecca N. Hann

Rebecca N. Hann

University of Maryland - Robert H. Smith School of Business

Heedong Kim

Baruch College, City University of New York

Wenfeng Wang

City University of Hong Kong

Yue Zheng

Hong Kong University of Science & Technology (HKUST)

Date Written: June 30, 2019

Abstract

Prior research documents large, persistent productivity dispersion even within narrowly defined industries, suggesting the presence of frictions that impede the efficient allocation of resources. In this paper we consider the role of information frictions. We posit that high-quality financial reporting with respect to firm productivity can mitigate information frictions and hence facilitate the efficient allocation of resources across firms. Using a large sample of firms in the manufacturing sector, we find evidence consistent with our prediction—industries with higher productivity informativeness tend to have smaller within-industry productivity dispersion. We further find that this relation is stronger in industries with greater dependence on external financing, suggesting that reporting quality affects allocation efficiency at least in part through the capital market channel. These findings suggest that the extent to which financial reporting is informative about productivity can affect resource allocation efficiency and hence have real effects at the macro level.

Keywords: Information Frictions, Financial Reporting Quality, Productivity Dispersion, Resource Allocation Efficiency

JEL Classification: D24, M41, O11, O47

Suggested Citation

Hann, Rebecca N. and Kim, Heedong and Wang, Wenfeng and Zheng, Yue, Information Frictions and Productivity Dispersion: The Role of Accounting Information (June 30, 2019). The Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2993699 or http://dx.doi.org/10.2139/ssrn.2993699

Rebecca N. Hann (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

Heedong Kim

Baruch College, City University of New York ( email )

One Bernard Baruch Way
New York, NY 10010
United States

Wenfeng Wang

City University of Hong Kong ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

Yue Zheng

Hong Kong University of Science & Technology (HKUST) ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

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