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The Relation Between Reporting Quality and Financing and Investment: Evidence from Changes in Financing Capacity
Author(s) -
BALAKRISHNAN KARTHIK,
CORE JOHN E.,
VERDI RODRIGO S.
Publication year - 2014
Publication title -
journal of accounting research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 6.767
H-Index - 141
eISSN - 1475-679X
pISSN - 0021-8456
DOI - 10.1111/1475-679x.12031
Subject(s) - finance , business , quality (philosophy) , internal financing , investment (military) , real estate , external financing , information asymmetry , debt , philosophy , epistemology , politics , political science , law
We use changes in the value of a firm's real estate assets as an exogenous change in a firm's financing capacity to examine (1) the relation between reporting quality and financing and investment conditional on this change, and (2) firms’ reporting quality responses to the change in financing capacity. We find that financing and investment by firms with higher reporting quality is less affected by changes in real estate values than are financing and investment by firms with lower reporting quality. Further, firms increase reporting quality in response to decreases in financing capacity. Our findings contribute to the literature on reporting quality and investment, and on the determinants of reporting quality choices.