Accounting Quality and Firm-Level Capital Investment

42 Pages Posted: 23 Jun 2006

See all articles by Gary C. Biddle

Gary C. Biddle

University of Melbourne - Faculty of Business and Economics; Columbia University - Columbia Business School; London Business School; The University of Hong Kong; University of Melbourne

Gilles Hilary

Georgetown University - Department of Accounting and Business Law

Abstract

This study examines how accounting quality relates to firm-level capital investment efficiency. Our first hypothesis is that higher quality accounting enhances investment efficiency by reducing information asymmetry between managers and outside suppliers of capital. Our second hypothesis is that this effect should be stronger in economies where financing is largely provided through arm's-length transactions compared with countries where creditors supply more capital. Our results are consistent with these hypotheses both across and within countries. They are robust to alternative econometric specifications, different measures of accounting quality and investment-cash flow sensitivity, and numerous control variables.

Keywords: investment, accounting quality

JEL Classification: D82, G31, M41, M43

Suggested Citation

Biddle, Gary C. and Hilary, Gilles, Accounting Quality and Firm-Level Capital Investment. Accounting Review, October 2006. Available at SSRN: https://ssrn.com/abstract=910806

Gary C. Biddle

University of Melbourne - Faculty of Business and Economics ( email )

Level 8, 198 Berkeley Street
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Columbia University - Columbia Business School ( email )

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London Business School ( email )

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The University of Hong Kong ( email )

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University of Melbourne ( email )

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Gilles Hilary (Contact Author)

Georgetown University - Department of Accounting and Business Law ( email )

McDonough School of Business
Washington, DC 20057
United States

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