Accepted by Philip Berger. We gratefully acknowledge comments from an anonymous referee, Ilan Gutman, Melissa Lewis (discussant), Scott Liao (discussant), Jeff Ng, Cathy Schrand, Joe Weber, Jing Wu, Gwen Yu (discussant), Luo Zuo, and seminar participants at the 2011 CARE-CEASA conference, the Interdisciplinary Center Herzliya, the 2011 NYU Summer Camp, the 2011 Stanford Summer Camp, the 2011 University of Colorado Summer Accounting Conference, the 2012 American Accounting Association Annual meetings, the University of Missouri, the University of Pittsburgh, and the University of Texas at Austin. We are indebted to David Sraer for his help with data issues. We are also grateful for the financial support of the Wharton School and the MIT Sloan School of Management.
The Relation Between Reporting Quality and Financing and Investment: Evidence from Changes in Financing Capacity
Article first published online: 22 OCT 2013
Copyright ©, University of Chicago on behalf of the Accounting Research Center, 2013
Journal of Accounting Research
Volume 52, Issue 1, pages 1–36, March 2014
How to Cite
BALAKRISHNAN, K., CORE, J. E. and VERDI, R. S. (2014), The Relation Between Reporting Quality and Financing and Investment: Evidence from Changes in Financing Capacity. Journal of Accounting Research, 52: 1–36. doi: 10.1111/1475-679X.12031
- Issue published online: 21 JAN 2014
- Article first published online: 22 OCT 2013
- Accepted manuscript online: 24 SEP 2013 11:29AM EST
- Manuscript Accepted: 15 SEP 2013
- Manuscript Received: 22 SEP 2011
- Wharton School
- MIT Sloan School of Management
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.