accountin seminar 2.pptx

8/10/2019 accountin seminar 2.pptx

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chapter 5

Result

The Role of Financial Reporting Quality inMitigating the Constraining Effect ofInvestments (H1)

The Mitigating Role of Financial ReportingQuality for R&D Investments vs. CapitalInvestments (H2)

The Mitigating Role of Financial ReportingQuality as a Function of FirmsGrowth Option(H3)


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The Role of Financial Reporting Quality in Mitigating the Constraining Effect of

Investments (H1)


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The results for the control variables in Equation 1are consistent with prior research (Biddle et al.2009)

Total investments decrease in firm size, salesvolatility, bankruptcy risk, leverage, cash flowfrom operations, firm age, length of operatingcycle, and incidence of losses, but increase in

investment opportunities, cash flow volatility,investment volatility, assets tangibility, and cashbalance.


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The Mitigating Role of Financial Reporting Quality for R&D

Investments vs. Capital Investments (H2)


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This finding provides support for H2,

suggesting that the role of high quality

financial reporting in mitigating the

constraining effect of dividends on investment

is more pronounced for R&D investments than

for capital investments.


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The Mitigating Role of Financial Reporting Quality as a

Function of Firms Growth Option (H3)


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These findings provide support for H3,

suggesting that financial reporting plays a

particularly important role in mitigating the

contraining effect of dividends on R&D

investments for firms with larger porting of firm

value attributable to growth options.


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CHAPTER 6

Further Analysis

Does the Mitigating Role of Reporting Quality

Vary across Firms based on Whether Firms

Have Decreased or Increased Dividends?

Alternative Proxy for Reporting Quality

Alternative Approach to Alleviate the Potential

Endogeneity of Dividends.

Underinvestment of Overinvestment


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Does the Mitigating Role of Reporting Quality Vary across

Firms based on Whether Firms Have Decreased or Increased

Dividends?


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the results suggest that high quality

financial reporting plays a particularly

important role in mitigating the negative

effect of dividends on R&D investments

among firms that have decreased dividends.


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Alternative Proxy for Reporting Quality


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This result is consistent with H3.

Overall, our results are robust to using

earnings restatements as an alternative, non-

accrual- based proxy for reporting quality


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Alternative Approach to Alleviate the Potential

Endogeneity of Dividends.

Overall, the results are robust to using an

alternative approach commonly used to

alleviate potential endogeneity concerns.


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Underinvestment of Overinvestment

We find that the effect of dividends on investments is lessnegative for firms with higher quality financial reporting.We interpret this result as consistent with our

underinvestment explanation in which high qualityfinancial reporting mitigates the constraining effect ofdividends on investments.

However, because dividends can also play a role inreducing overinvestments by limiting the free cash flow

available to management, an alternative overinvestmentexplanation for our finding could be that higher qualityfinancial reporting


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CHAPTER 7

Conclusion

This study provides new evidence that financialreporting quality plays an important role in theinteraction of firm dividend policy andinvestment decisions.

The high quality financial reporting has theimportant and previously unidentified, benefit ofalleviating the constraining effect of firmsdividend policy on their investment decisions,

which in turn reduces the risk that firms forgovaluable investment projects in order to maintaindividends.


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THANK YOU!

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accountin seminar 2.pptx