The Effect of Financial Reporting Quality on Corporate Investment Efficiency: Evidence from the Adoption of SFAS No. 123R

• 成果类型: Article
• 署名作者: Dou, Yiwei; Wong, M. H. Franco; Xin, Baohua
• 署名单位: New York University; University of Toronto
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2018.3045
• 发表日期: 2019
• 页码: 2249-2266
• 关键词: recognition; disclosure; reliability; financial reporting quality; Corporate investment; accounting regulation; Employee stock options

摘要

We test for changes in investment efficiency around a shock to financial reporting quality-the adoption of SFAS No. 123R, which requires that employee stock option (ESO) costs be recognized rather than disclosed at fair value. We predict and find a reduction in underinvestment for firms heavily affected by the new standard, and these firms exhibit a decrease in the bid-ask spread and an increase in new capital raised in the post-SFAS No. 123R period. The reduction in underinvestment is more pronounced for firms whose ESO estimates are more unreliable before SFAS No. 123R, for firms that are financially constrained, and for firms with more entrenched managers. These findings are consistent with recognition of ESO costs at fair value improving financial reporting quality, which, in turn, enhances investment efficiency through the mitigation of the adverse selection problem for underinvesting firms.