How Does Financial Reporting Quality Relate to Investment Efficiency

By Gary C. Biddle, Gilles Hilary, Rodrigo S. Verdi. 2009

2,815 citations recorded by the source corpus.

Prior evidence that higher-quality financial reporting improves capital investment efficiency leaves unaddressed whether it reduces over- or under-investment. This study provides evidence of both in documenting a conditional negative (positive) association between financial reporting quality and investment for firms operating in settings more prone to over-investment (under-investment). Firms with higher financial reporting quality also are found to deviate less from predicted investment levels and show less sensitivity to macro-economic conditions. These results suggest that one mechanism linking reporting quality and investment efficiency is a reduction of frictions such as moral hazard and adverse selection that hamper efficient investment.

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Citations in the corpus

Corporate investment efficiency: The role of financial development in firms with financing constraints and agency issues in OECD non-financial firms (2019, methodology): “, Biddle et al. (2009) and Guariglia and Yang (2016), a set of control variables are also included in the model.”
Real Effects of Accounting Rules: Evidence from Multinational Firms’ Investment Location and Profit Repatriation Decisions (2010, unknown): “For example, Biddle et al. (2009) examine the effect of financial reporting quality on investment efficiency.”
Corporate investment and changes in GAAP (2016, unknown): “Another strand of research examines whether disclosure quality facilitates more efficient investment by (1) reducing agency problems (Biddle et al. 2009; Balakrishnan et al. 2014, 2016; Shroff 2015), (2) informing managers of the disclosing firms and peer firms (McNichols and Stubben 2008; Badertsch”
Employee Ownership and Firm Disclosure (2015, methodology): “Specifically, following Biddle et al. (2009) we first normalize all proxies and then take the average of the nine measures as our summary statistic for financial disclosure (DSCORE).”
Do Industry-Specialist Auditors Influence Stock Price Crash Risk? (2015, unknown): “2010) and over-investment (Biddle et al. 2009).”