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Accounting Information Quality and Investment Efficiency in Company

Author: LiAiYing
Tutor: CaiJiFu
School: Jiangxi University of Finance
Course: Accounting
Keywords: Accounting information quality Investment efficiency Underinvestment Overinvestment
CLC: F233
Type: Master's thesis
Year: 2013
Downloads: 236
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Abstract


Corporate investment is one of the key factors of the company value creation andeconomic growth in the decision. The investment efficiency has a direct impact onwhether the enterprise can obtain the long-term development. But because of theexistence of asymmetric information and agency problems, the problem ofunderinvestment or overinvestment is common in the process of company’s investment,the company’s inefficiency investment seriously damaged the interests of shareholdersand the healthy development of the economy. Effect of accounting information oncorporate investment behavior is more and more prominent, especially in the economicbackground that the current accounting information quality is not high, the listedCorporation financial fraud have occurred from time to time. From the QiongMinyuan, Zheng baiwen to Dawn Shares, Yin Xiaguang, they seriouslydamaged the interests of investors and affected the development of capital market inchina. The research on enterprise investment has been mainly discussed which factoraffects it. Modigliani and Miller’s MM irrelevant theory opens the way for the researchon investment and financing decision theory in1958. Since then, domestic and foreignscholars have put forward various investment behavior theories in the relaxed MMtheorem at the assumption of the conditions, and they have given a lot of empirical teststo explain firm characteristics impact on corporate investment decision. At present, theempirical studies on the enterprise investment behavior of China’s listing Corporationfocused on the internal cash flow, ownership structure and the soft budget constraint andother aspects, about the influence of the quality of accounting information forinvestment decision is not much.This paper starts with the respective of the accounting information quality, basedon the information asymmetry theory and principal-agent theory. From the aspect ofinformation asymmetry and agency conflict, it analyzes the relationship between theefficiency of investment and the quality of accounting information in company. Thispaper also explains how the quality of accounting information affects the company’sinvestment efficiency. At the same time, it analyzes the mechanism of the quality ofaccounting information governance inefficiency investment of the enterprises. It comesup with the path about the management of underinvestment and overinvestment due toenterprise accounting information quality. First, in the capital market, the high qualityaccounting information can alleviate the information asymmetry in the enterprise, it canreduce adverse selection effectively and increase the liquidity of the capital market, italso can reduce the enterprise financing cost to avoid underinvestment caused byfinancing constraints problems. Second, in the corporate governance, high quality accounting information can reduce shareholder-manager’s agency conflict andconstraint operators to expand the scale of enterprises blindly to seek personal gain,which is effective to reduce moral hazard, so as to guide the agent engaged ininvestment behavior correctly and avoid overinvestment.On this basis, this paper uses empirical data of Shanghai and Shenzhen listedcorporations in China from2003to2010. This paper calculates the measure ofinvestment efficiency according to Richardson model, and uses the DD model to selectthe accruals quality as a proxy for the quality of accounting information. All these is tostudy the relevance between the quality of financial information and the investmentefficiency, also attempt to provide empirical evidence for the behavior of investmentefficiency influenced by the listed company’s accounting information quality. And theconclusion of theoretical analysis is verified by the descriptive statistics, correlation andmultiple regression analysis methods. The results of the study are as follows, the qualityof accounting information and the inefficiency are negative. The quality of accountinginformation is higher, the inefficiency investment is much less. High accountinginformation can enhance the function of the pricing and the governance. It can reducethe moral hazard and adverse, so as to reduce the underinvestment and overinvestment.High quality will better reduce the underinvestment in the corporation with largerfinancing constrains. High quality will better reduce the overinvestment in thecorporation with more free cash flow.This paper puts forward some suggestions based on the research results. Establish aperfect information disclosure system and improve the situation of asymmetricinformation. Improve the quality of accounting information evaluation system andestablish a scientific evaluation standard. Strengthen the enterprise accountingmanagement system and build s strict internal management system. This paperprovide a new perspective for the influence factors to investment efficiency, futureresearch can further explore the effect of other factors on the inefficient investmentgoverned by accounting information quality, It also can study on the relationship ofaccounting information quality and corporate value, accounting information quality andeconomic performance on the existing basis.

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CLC: > Economic > Economic planning and management > Accounting > Accounting Organization and system
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