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Financial reporting quality and corporate investment efficiency: Chinese experience

Author

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  • Qingyuan Li
  • Tielin Wang

Abstract

Purpose - The purpose of this paper is to study the relationship between financial reporting quality and investment efficiency in China. Design/methodology/approach - By analyzing institutional background and hypotheses development, the paper selected listed firms in China to be the study samples. On the base of that, the relationship between financial reporting quality and investment efficiency of the samples were discussed. Findings - Consistent with this claim, the paper finds proxies for financial reporting quality, namely self‐constructed composite measures, are negatively associated with both under‐ and overinvestment of the listed corporations; of which the effects of accrual quality and earnings smoothness on under‐ and overinvestment are most significant. Research limitations/implications - Overall, this paper has implications for research examining the determinants of investment efficiency and the economic consequences of enhanced financial reporting. Practical implications - This paper seeks to develop Chinese economic infrastructure into an economically efficient system of public financial reporting and disclosure in order to improve accounting information's role of allocating capital. Originality/value - The conclusion of this paper might be the first empirical evidence to support prior research that financial reporting quality is positively related to investment efficiency for large, US publicly traded firms, thus the findings extend to public firms in emerging markets.

Suggested Citation

  • Qingyuan Li & Tielin Wang, 2010. "Financial reporting quality and corporate investment efficiency: Chinese experience," Nankai Business Review International, Emerald Group Publishing Limited, vol. 1(2), pages 197-213, June.
    • Handle: RePEc:eme:nbripp:v:1:y:2010:i:2:p:197-213
    DOI: 10.1108/20408741011052591
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    Citations

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    Cited by:

    1. Shen, Chung-Hua & Luo, Fuyan & Huang, Dengshi, 2015. "Analysis of earnings management influence on the investment efficiency of listed Chinese companies," Journal of Empirical Finance, Elsevier, vol. 34(C), pages 60-78.
    2. Seyed Sajad Ebrahimi Rad & Zaini Embong & Norman Mohd-Saleh & Romlah Jaffar, 2016. "Financial Information Quality and Investment Efficiency: Evidence from Malaysia," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 12(1), pages 129-151.
    3. Hou, Yang & Wu, Manling, 2019. "An empirical study on the influencing factors for the over-investment of Chinese SOEs," MPRA Paper 94839, University Library of Munich, Germany.
    4. Khushboo Gulati & Seema Gupta & C. P. Gupta, 2020. "The Transformation of Governance System: A Decade Long Experience of Corporate Governance Using Meta-analysis," Global Journal of Flexible Systems Management, Springer;Global Institute of Flexible Systems Management, vol. 21(3), pages 233-262, September.

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