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Financial Reporting Quality, ESG and Prosperity Disclosure, and Investment Efficiency: The Role of Information Asymmetry (Moral Hazard Friction)

Author

Listed:
  • Susi Susilawati
  • Titik Aryati
  • Vinola Herawaty

Abstract

An investment is considered effective when it has a positive impact on a company and its growth. However, to get an investment is demanding since it is influenced by various factors, especially internal management, which can hinder the achievement of the main investment objectives. The study aims to provide empirical evidence on the impact of financial reporting quality (FRQ); environmental, social, governance and prosperity disclosures (ESGP) on investment efficiency (IE), as well as the role of information asymmetry (IA) as a moderator. Purposive sampling was used in the sample selection process for firms that are listed on IDX_IC Shares (Indonesian Stock Exchange) during the 2019-2021 timeframe, while balanced panel data was used. Panel data regression was used for regression analysis. Based on the research, it was found that the FRQ affects investment efficiency; while ESG and prosperity disclosure did not affect investment efficiency. Furthermore, information asymmetry affects investment efficiency, and it can moderate (weaken) the effect of FRQ on investment efficiency. However, the information asymmetry did not weaken the influence of ESG and prosperity disclosure on investment efficiency. These findings indicate that the FRQ is the primary determining factor in investment. With the best quality financial information, it is easier to identify investment opportunities that can increase investment efficiency. Meanwhile, ESG and prosperity disclosure cannot directly influence investment decisions to achieve investment efficiency. Yet, the existence of information asymmetry results in disclosure being paid more attention by management so that it tends to have more effect on efficient investment. The research implicates the importance of understanding for stakeholders to pay more attention to the impacts arising from information asymmetry (referring to moral hazard) on investment efficiency.

Suggested Citation

  • Susi Susilawati & Titik Aryati & Vinola Herawaty, 2024. "Financial Reporting Quality, ESG and Prosperity Disclosure, and Investment Efficiency: The Role of Information Asymmetry (Moral Hazard Friction)," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 7, pages 142-160.
    • Handle: RePEc:bas:econst:y:2024:i:7:p:142-160
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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