Research On The Effect Of Financial Reporting Quality On The Efficiency Of Investment

In recent years, with the vigorous development of capital markets, state government regulators and theorists are beginning to realize that the quality of financial reporting is not only the key to the development and supervision of accounting standards, but also an important topic of theoretical research. More importantly, whether it will affect the capital market resource allocation decisions and how does it impact, all of these will provide more meaningful help for how to understand the importance of accounting information for management responsibility of managers and investors.Based on the context of such an economic environment, people gradually realized that there might be such a reason, which is that, the correlation between financial reporting quality and investment efficiency lead to a reduction in the information asymmetry between the company and external suppliers of funds. For example, the company which is subject to financial constraints could through its high quality of financial reporting to make investors more likely to notice the company’s net present value projects, while reducing the adverse selection of securities issued by the company, and in order to attract funds. In addition, the higher quality of financial reporting can curb manager incentives for corrupt behavior of enterprise value, especially, when the company has sufficient capital. If the higher quality of financial reporting in favor of writing a better contract, then it can achieve its inhibition of non-efficiency investment and enhance the role of investors in the supervision and management of the investment decision-making capacity.Based on this reasoning, the article hypothesize that higher-quality financial reporting is associated with either lower over-investment, lower under-investment, or both. This paper uses the standardized research methods and empirical research methods to study the combination of these assumptions. First, we examine whether financial reporting quality is associated with those firms which are more prone to over-invest and the firms those are more likely to under-invest. To do so, this paper distinguishes between samples by drawing Richardson (2006) model, and in which way, it shows the association between listed companies and over-investment or under-investment. Secondly, as in the case of the different nature of the property, quality of financial reporting may have different effects on the efficiency of investment, this article have been tested state-owned listed companies and private listed companies respectively, expecting to conclude that, in private listed companies, the quality of financial reporting more significant impact on the efficiency of investment.In order to enhance comparability with previous studies, this article uses the performance of Jones model, and deduced accruals corporate profits through this model, computing the absolute value of this indicator, then, uses the absolute value of the index as an alternative variable to measure the quality of financial reporting. Secondly, this article uses disclosure of listed companies’ financial reporting quality ratings to measure the quality of financial reporting for approval external, which is used by "Information Disclosure Shenzhen Stock Exchange appraisal approach". Finally, we also use the accruals quality, which is derived by Dechow and Dichev (2002), as an alternative variables to measure the quality of financial reporting. This approach is based on that, accruals quality can improve the amount of information surplus by smoothing temporary fluctuations in cash flow, and it is also an another important indicator in robust test.This paper analyzes the results of two important conclusions. First, we find that, the higher quality of financial reporting associated with both lower over-investment and under-investment. Specifically, the quality of financial reporting has a negative correlation with those companies which were more prone to over-investment in previous studies; and exhibit a positive correlation conducted with investment companies who are more prone to underinvestment. Thus, this finding suggests that the contact between financial reporting quality and investment is being set under the conditions of possibility where the companies are to invest more prone to over-or under-investment. Second, with respect to the state-owned listed company, the quality of financial reporting on non-state-owned listed companies (ie private listed companies) has a weaker significant effect on the investment efficiency. Currently, in the previous literature, it lacks strong empirical evidence to validate this hypothesis.In this paper, the main framework for the arrangements as follows, Section1presents the introduction of the article, introduces the research background and significance of this paper; Section2presents a literature review study; Section3 introduces the basic theory of this article and put forward the hypothesis of the article; Section4describes the research design; Section5presents mainly empirical study; Section6concludes research findings policy recommendations and further prospects.