International Transaction Journal of Engineering,
Management, & Applied Sciences & Technologies

FEATURE PEER-REVIEWED ARTICLE

• NEXUS OF FINANCIAL REPORTING QUALITY AND INVESTMENT EFFICIENCY

  Irfan Ullah, Usman Ayub, Hashim Khan (Department of Management Sciences, COMSATS University, Islamabad, PAKISTAN ).
  

  Disciplinary: Management and Financial Sciences.

  (Backup file)

  DOI: 10.14456/ITJEMAST.2020.164

  Keywords: Earnings management; Adverse selection; Liability side accruals quality; Moral hazard; Firm performance; Asset side accruals quality; Total accruals quality (TAQ).

  Abstract
  This paper examines the bi-directional relationship between financial reporting quality and investment efficiency. Prior studies suggest that financial reporting quality improves the investment efficiency of firms. Using firm-level data one measure of financial reporting quality namely liability side accrual quality confirms this association. Further, we find that firms involve in accruals earnings management thereby decreasing financial reporting quality in an attempt to conceal firm performance from outsiders. Our measure of investment efficiency excessively predicts financial reporting quality. This relationship can be seen for both proxies of financial reporting quality- asset side accruals quality and liability side accruals quality. Results on the two-way relationship between variables are robust even when we use total accruals quality as an alternative proxy of financial reporting quality.
  
  Paper ID: 11A9B