Financial Reporting Quality and Myopic Investments: Theory and Evidence

• 成果类型: Article
• 署名作者: Geng, Heng (Griffin); Zhang, Cheng; Zhou, Frank S.
• 署名单位: Victoria University Wellington; University of Denver; University of Pennsylvania
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/TAR-2021-0380
• 发表日期: 2023
• 页码: 223-251
• 关键词: voluntary disclosure; earnings management; accounting measurement; resource-allocation; real; MARKET; mergers; FIRMS; manipulation; credibility

摘要

We present theory and empirical evidence that greater financial reporting quality can incentivize myopic investments. In the model, greater financial reporting quality increases investor response to earnings, elevating the manager's incentive to invest myopically to improve earnings. Using the setting of Big N auditors' acquisitions of nonBig Ns, which increased investor response to earnings for the acquired client firms, we find evidence supporting myopic investments. Specifically, acquired clients decrease intangible investments, particularly when (1) the increase in investor response to earnings is larger and (2) the horizon of shareholders is shorter. The investment decrease is inefficient, as evidenced by reduced profitability, fewer exploratory innovations, and other measures.