Financial Restatement and Investment Inefficiency—A Path Analysis Based on Financing Constraints

11 Pages Posted: 6 Jul 2017

See all articles by Xiang Xiao

Xiang Xiao

Beijing Jiaotong University - School of Economics and Management

Tianjiao Zhao

Beijing Jiaotong University - School of Economics and Management

Lei Shao

Beijing Jiaotong University - School of Economics and Management

Date Written: July 1, 2017

Abstract

Based on agency theory and signaling theory, we take a sample of Shanghai A-share listed companies during the period 2011-2015 and use a path analysis to construct our research models. This paper first studies the influence of financial restatement on inefficient investment, and then investigates a latent variable, financing constraints, and studies the mediating effect of financing constraints in the relationship. The results show that for the over-invested companies, the degree of over-investment will be reduced after financial restatement, with financing constraints playing a partial mediating role. For the under-invested companies, the degree of under-investment will be more serious after the financial restatements, with financing constraints also playing a partial mediating role. This paper enriches the application of a mathematical method, path analysis, in social science, and reveals the mediating effects of financing constraints. This paper is meant to guide listed companies in strengthening their corporate governance, and improving their information disclosure quality.

Keywords: Financial Restatement, Financing Constraints, Investment Inefficiency, Over-investment, Under-investment, Path Analysis

JEL Classification: C31, G30

Suggested Citation

Xiao, Xiang and Zhao, Tianjiao and Shao, Lei, Financial Restatement and Investment Inefficiency—A Path Analysis Based on Financing Constraints (July 1, 2017). Available at SSRN: https://ssrn.com/abstract=2995994 or http://dx.doi.org/10.2139/ssrn.2995994

Xiang Xiao

Beijing Jiaotong University - School of Economics and Management ( email )

China

Tianjiao Zhao (Contact Author)

Beijing Jiaotong University - School of Economics and Management ( email )

China

Lei Shao

Beijing Jiaotong University - School of Economics and Management ( email )

China

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