THE ACCOUNTING REVIEW
V ol.81,No.5
个人房屋租赁发票2006
pp.963–982
Accounting Quality and Firm-Level口语大赛
Capital Investment
Gary C.Biddle
Hong Kong University of Science and Technology
心理咨询师培训Gilles Hilary
Hong Kong University of Science and Technology
ABSTRACT:This study examines how accounting quality relates tofirm-level capital
investment efficiency.Ourfirst hypothesis is that higher quality accounting enhances
investment efficiency by reducing information asymmetry between managers and out-
side suppliers of capital.Our cond hypothesis is that this effect should be stronger
in economies wherefinancing is largely provided through arm’s-length transactions
compared with countries where creditors supply more capital.Our results are consis-五年级英语视频
tent with the hypothes both across and within countries.They are robust to al-
ternative econometric specifications,different measures of accounting quality and
investment-cashflow nsitivity,and numerous control variables.
Keywords:accounting quality;capital investment;corporate governance.
I.INTRODUCTION
A significant body of prior literature examines relations between accounting quality
andfinancial market characteristics,yet little prior rearch exists that analyzes the effects of accounting quality on investment.Here,we examine how accounting quality relates tofirm-level capital investment efficiency,a key determinant of economic productivity.Our focus on investment in productive asts complements and extendsfind-ings on how accounting relates to publicfinancial markets’operating characteristics.For example,Bhattacharya et al.(2003)find that accounting opacity is associated with a higher cost of publicly traded equity capital across34countries.However,institutional features may be related tofirm-level capital investment differently than to equity market operations. For instance,privatefinancing from banks in ,Gorton and Schmid2000), keiretsu in ,Hoshi et al.1991),and families in East ,Claesns et al. 2000)may obviate or alter the effects of institutional features from their operational roles
We are grateful for the rearch assistance of Fenny Cheng and for helpful comments received from two anonymous reviewers,Mary Barth,Jean de Bettignies,Donal Byard,Songnian Chen,Dan Dhaliwal(the editor),Clive Lennox, Steve Orpurt,Douglas Skinner,Guochang Zhang,and workshop participants at Baruch College–CUNY,Cass Business School,Hong Kong University of Science and Technology,London School of Economics,Singapore Management University,University of British Col
umbia,and Wada University.Professors Biddle and Hilary thank the University Grants Committee of Hong Kong forfinancial support(HKUST6435/05H).
Editor’s note:This paper was accepted by Dan Dhaliwal.
Submitted June2005
Accepted May2006
963考研政治真题答案
964Biddle and Hilary The Accounting Review,October 2006
in public equity markets.Hence,how accounting quality affects the efficiency of firm-level capital investments remains an open question of fundamental importance.strikeout
In the neoclassical tting,managers (i.e.,firms)endowed with capital invest until the marginal return is zero,allowing for adjustment costs (e.g.,Tobin 1969;Hayashi 1982).In this baline tting,we should not obrve an association between internally generated cash flows and investment.But veral frictions contradict this efficient result.One is capital rationing,which is generated by informati
on asymmetry between managers and investors.Since at least Myers (1984),it has been shown that if managers can exploit private infor-mation to issue curities at inflated prices,then investors rationally withhold capital.A resulting reliance on internal funding increas the nsitivity of investments to cash.A cond friction aris from agency problems,when managers pursue perquisite consumption and ‘‘empire building’’rather than returning excess cash to investors (e.g.,Jenn 1986;Blanchard et al.1994).1This behavior also may increa the nsitivity of investments to cash flows,but,in this ca,the nsitivity is due to an excess of cash.
Certain institutional features may rve to mitigate the deviations from the optimal investment policy.For example,Rajan and Zingales (2000)obrve that ‘‘to function prop-erly,a financial system requires clear laws and rapid enforcement,an accounting and dis-closure system that promotes transparency,and a regulatory infrastructure that protects consumers and controls risk.’’Transparent accounting should reduce both adver lection (i.e.,the tendency to issue curities at an inflated price)and moral hazard (i.e.,perquisite consumption using asts in place)by improving contracting and monitoring.2Thus,higher quality accounting may rve to enhance investment efficiency by mitigating the frictions.
We examine this hypothesis by considering the effects of differences in accounting quality both at th
e country level and at the firm level within countries.To do so,we first estimate investment-cash flow nsitivities for firms from 34countries.We then consider how the average investment-cash flow nsitivity across countries varies with accounting quality.We measure accounting quality using three proxies for earnings quality described by Bhattacharya et al.(2003),as well as a measure of accounting timeliness from Bushman et al.(2004).We also are careful to control for the confounding effects of other institutional features,such as disclosure quality (CIFAR index),legal origin,creditor and shareholder rights,judicial efficiency,and economic conditions (e.g.,the degree of economic develop-ment).We find that higher accounting quality is associated with lower investment-cash flow nsitivity.We also find that other institutional features,particularly creditor rights and disclosure quality,play a similar but incremental role.The results persist after allowing for the possibility that operating cash flows convey additional information about short-term profitability (e.g.,Alti 2003).
Having established that differences in accounting quality are associated with differences in the efficiency of capital investments across countries,we then examine how sources of financing (debt versus equity)affect this relation.A priori ,we expect accounting quality to play a stronger role in economies where financing is largely provided through arm’s-length transactions,for example,where stock exchanges are the dominant sources of capital,since here,investment decisions rely more hea
vily on public accounting disclosures.On the other hand,in economies where creditors play a more dominant role,banks may be able to obtain information through private channels (mitigating adver lection problems),and they may be in a better position to directly monitor managers once capital is supplied 1
Note that the existence of the agency problem ex post may lead to rationing of capital ex ante .2See Healy and Palepu (2001)for a review.
Accounting Quality and Firm-Level Capital Investment965 (mitigating moral hazard).Thus,in credit-dominated economies,the quality of publicly disclod accounting information should be less influential in decisions to supply capital than in public equity-dominated economies.Therefore,we should obrve a smaller effect on capital investment decisions when accounting quality is improved in credit-dominated economies than in public equity-dominated economies.
We test this hypothesis in two ways.Initially,we regress cashflow nsitivity on accounting quality in our cross-country sample,partitioning obrvations in two groups bad on the prevalence of public equity versus debtfinancing.Wefind that higher ac-counting quality is associated with lower investment-cashflow nsitivity in economies that depend more on public equityfinancing compared
with tho more reliant on debtfinancing. Then,we examine the effect of accounting quality on investment efficiency at thefirm level in two lected countries.We do this for veral reasons.First,it allows us to determine whether accounting quality operates similarly across and within countries.Second,it helps us to control for certain differences in characteristics across countries that could affect our cross-country results,such as correlations between accounting quality,legal origins,creditor rights,and administrative efficiency.Finally,as explained below,thisfirm-level analysis allows us to address certain econometric issues.
In our within-country tests,we examine two polar cas—the U.S.and Japan—for veral reasons.First,they are the two largest economies in the world with abundant ex-ternalfinancing available tofirms.Second,they provide large and diversifiedfirm samples with long time-ries data that enable us to estimatefirm-specific parameters with a rea-sonable level of confidence.Comparable datats are generally not available for other coun-tries.However,the U.S.and Japan differ along one important dimension.Public equity capital plays a much more dominant role as a source offirmfinancing in the U.S.than in Japan.Thus,we expect accounting quality to play a more important role in the largely arm’s-length transactions in the U.S.On the other hand,Japane suppliers of capital,such as keiretsu and banks,have non-public sources of informati
on and thus the quality of public accounting disclosures may be less relevant to their decisions to supply capital.Our results are consistent with the predictions.Accounting quality matters both statistically and ec-onomically in the U.S.where higher quality accounting is associated with lower investment-cashflow nsitivity,but we do not obrve such a relation in Japan.
entry是什么意思
Ourfindings contribute in at least two ways to the existing literature.First,they provide empirical evidence that accounting and other institutional features relate to the economic fundamentals offirm-level capital investment efficiency.In particular,accounting quality is shown to reduce frictions in the investment process.Wefind that this effect exists both across countries and within countries,even in the most liquid capital market,the U.S. Second,ourfindings confirm that this effect is stronger in economies where public equity capital plays a greater role in capital investmentfinancing compared with countries domi-nated by debtfinancing.This effect is obrved in both our cross-and within-country tests.
We proceed as follows.Section II reviews related rearch.Section III develops our hypothes.Section IV describes our tests for relations between accounting quality and investment-cashflow nsitivity.Section V prents ourfindings.Section VI concludes the paper.
II.RELATED RESEARCH
Economists have long studied howfinancial frictions affect investment decisions and economic growth.This literature is too extensive to review comprehensively here,though
The Accounting Review,October2006
966Biddle and Hilary The Accounting Review,October 2006
中学生英语日记
we discuss lected results in the ‘‘Overall Approach’’ction below.3More recently,schol-ars in accounting,finance,and law have focud their attention on the effects of institutional features (such as legal structure or judicial enforcement)on market frictions and their conquences for capital investment.For example,Bhattacharya et al.(2003)have shown that the cost of publicly traded equity across 34countries is related to three different measures of earnings transparency.Francis et al.(2005)provide international evidence that dependence on external financing creates incentives for firms to undertake higher levels of voluntary accounting disclosure.However,the implication of the findings for firm-level investment is not straightforward.If equity financing were the only source of capital,then frictions in equity financing would probably lead to frictions in capital investing.However,firms can access multiple sources of financing.Thus,if one channel is inefficient (e.g.,public equity financing),then other sources such as debt,private financing,state subsidies,and in
tra-group capital transfers,for example,can substitute.In equilibrium,there may not be any differences in investment efficiency at the firm level,but simply cross-ctional differences in financing patterns.Consistent with this view,Demirguc-Kunt and Maksimovic (2002)find no evidence that a country’s relative reliance on bank versus stock market financing affects firms’access to external financing.
Other studies have considered relations between institutional features and capital in-vestment at the industry level.For example,Wurgler (2000)measures cross-country capital allocation efficiency by industry-level elasticity of investment with respect to value added.He finds this measure to be positively related to the amount of firm-specific information available in domestic stock markets when measured by synchronicity,positively related to minority shareholder rights,and negatively related to state ownership.Rajan and Zingales (1998)show that industry growth is positively related to a financial development index.
Our paper advances the existing literature in veral ways.First,instead of considering the effect of institutional features on industry growth (e.g.,Rajan and Zingales 1998;Wurgler 2000)or on financial market development (e.g.,LaPorta et al.1997;Demirguc-Kunt and Maksimovic 1998),we focus on firm-level capital investment decisions.Second,we concentrate on accounting quality,a feature not ex
amined in many prior studies (e.g.,LaPorta et al.1997;Demirguc-Kunt and Maksimovic 1998;Wurgler 2000).In addition,we consider the differences both between countries and between firms within a country.Third,our tests do not limit capital market frictions to their effects on capital rationing exclusively (e.g.,Fazzari et al.1988).Rather,we allow accounting quality to reduce either the lack or excess of cash.Finally,given the possibility that different sources of capital may substitute for each other,we do not limit our attention to any specific financing channel (e.g.,Bhattacharya et al.2003)and instead focus on capital investment behavior.
III.HYPOTHESIS DEVELOPMENT
Tobin (1969)theorizes that capital investment is a function of the ratio between the stock-market valuation of existing real capital asts and their current replacement cost.Yoshikawa (1980),Hayashi (1982),and Abel (1983)reconcile this theory with the neo-classical interpretation.In this framework,the marginal Q ratio,q ,is the driver of capital investment policy.For example,Hayashi (1982)summarizes the model by stating,‘‘once q is known ...the firm can decide the optimal rate of investment though the knowledge of the installation function alone.’’He then proceeds to estimate this baline model by regressing the investment rate on q .Fazzari et al.(1988)challenge this view and suggest 3See also Hubbard (1998)for a review and reprentative studies by Bagehot (1873),Ki
jbuilderng and Levine (1993),Rousau and Wachtel (1998),and Beck et al.(2000).
Accounting Quality and Firm-Level Capital Investment 967The Accounting Review,October 2006
that firms that are liquidity-constrained (i.e.,cannot externally finance their investments)need to rely more on their internally generated funds.
Hoshi et al.(1991)summarize two possible justifications for capital rationing.On the one hand,moral hazard models suggest that outside financing can dilute managements’ownership stakes,thereby exacerbating incentive problems that ari when managers control the firm but do not own it.This ex post incentive problem reduces the amount of capital supplied ex ante .On the other hand,Myers and Majluf (1984)propo an adver lection model.They suggest that if managers are better informed than investors about a firm’s prospects,they will try to ll overpriced curities.Rational investors will,in respon,increa the cost of capital,thus decreasing the amount demanded.Therefore,in both cas,frictions operate to reduce the amount of external capital supplied to the firm.Firms that can generate cash internally are able to mitigate the effects,which caus capital invest-ment to be correlated with the availability of internally generated funds.
There is prently a debate (e,for example,Fazzari et al.2000;Kaplan and Zingales 1997,2000)as t
o whether higher investment-cash flow nsitivity necessarily implies that firms are more financially constrained.In this paper,we remain agnostic on this issue since the problem may not be a lack,but rather an excess of cash.Capital investment can be correlated with internally generated funds simply becau managers do not return to inves-tors excess cash coming from rents (and quasi-rents)and other asts in place.Casual empiricism suggests the existence of such overinvestment by managers and veral theo-retical explanations have been propod.For example,Jenn (1986)suggests that managers have incentives to grow their firms beyond their optimal size.4Whereas external financing subjects managers to monitoring and disciplining by capital providers,‘‘financing projects internally avoids this monitoring and the possibility the funds will be unavailable,’’thereby allowing managers to overinvest.Blanchard et al.(1994)provide empirical support for this view.They consider what managers do when they receive a cash windfall that does not change the investment opportunity t (i.e.,Tobin’s Q).In perfect financial markets,managers should return the money to the capital suppliers.Contrary to this expectation,Blanchard et al.(1994)find that managers tend to invest in unrelated projects that typically fail.
Notice that all of the imperfections are predicated by the existence of information asymmetry between managers and outside suppliers of capital.If managers could commit to revealing all of their
private information,then outsiders would not ration capital for fear of buying at an inflated price.Similarly,if higher quality accounting permitted perfect monitoring,then no agency problem would ari (e,for example,Antle and Eppen [1985]for a formal model of this idea).We would then be back to the baline neoclassical model and internally generated cash flows would play no role in investment decisions.Our main hypothesis is predicated on this idea:
H1:Higher quality accounting reduces the investment-cash flow nsitivity at the firm
level.
We further predict,bad on the reasoning above,that this effect should be stronger in economies where financing is largely provided through arm’s-length transactions,for ex-ample,where the stock market is the dominant source of capital.On the other hand,in 4For simplicity,we u ‘‘empire building’’as our main way to motivate overinvestment.However,there are other models leading to a similar pattern such as overconfidence (e.g.,Heaton 2002),the ‘‘quiet life’’(Bertrand and Mullainathan 2003),and reputation (e.g.,Baker 2000).
968Biddle and Hilary economies where creditors play a central role infinancing,banks may be able to obtain information through alternate private channels(and thus mitigate adver lection prob-lems).
They also may be in a better position to monitor the managers directly once the capital has been supplied(and thus mitigate the moral hazard).In this ca,accounting quality should be less relevant to their decisions to supply capital and,as a result,we should obrve a smaller effect of accounting quality on investment efficiency in credit-bad economies.This leads to our cond hypothesis:
H2:Higher quality accounting reduces the investment-cashflow nsitivity more in economies dominated by stock markets than in tho dominated by creditors. Notice that we do not form any prediction as to whether one type of economy is better than the other in mitigating frictions in the investment process.
IV.CASH FLOW SENSITIVITY:EMPIRICAL SETTING
Overall Approach
We employ both cross-and within-country tests,each with its own advantages.In the cross-country tests,average investment-cashflow nsitivities are estimated by country us-ingfirm-level data and then regresd on accounting quality and other variables of interest. This testing approach is likely to enhance the power of our tests by increasing both the cross-ctional variation and the magnitudes offinancial frictions.It also enables us to consider the effects of institutional factors,such as creditor ri
ghts and legal origin,which cannot be easily studied in a single-country tting.As obrved by Francis et al.(2005),‘‘the United States is generally viewed as having a frictionlessfinancial market with rela-tively easy access to externalfinancing,and therefore it is not clear if U.S.findings nec-essarily generalize to countries with differentfinancial or legal systems.’’However,the cross-country approach also has some limitations.First,it is difficult to obtain sufficient time-ries data from multiple countries to estimatefirm-specific parame-ters.Second,different institutional ttings and accounting rules make it difficult to compare firm-bad measures across countries.For example,since ast revaluation is permitted in some countries but not in others,plant,property,and equipment and depreciation measures convey different meanings.To address the issues and to provide corroborating evidence that the hypothesized effect of accounting quality on investment efficiency operates within as well as across counties,we further examine two contrasting countries:the U.S.and Japan.Both countries have large economies with ample sources of externalfinancing.How-ever,in the U.S.,stock markets play a central role in providing capital,while in Japan, keiretsu and banks are the major source of capital.As documented by Wurgler(2000),the ratio of stock market value to total credit market value is0.64for the U.S.but only0.15 in Japan.Our focus on the U.S.and Japan allows us to asss whether the dominant form offinancing influences the effect of accounting quality on investment decisions. Samples and Data碰撞英文
To enhance comparability with prior rearch,we utilize data from the same t of34 countries examined by Bhattacharya et al.(2003).For our cross-country tests,accounting andfinancial data are obtained from Compustat Global Vantage for the entire coverage period of the databa(1993to2004).Accounting andfinancial data for the within-country tests are obtained for the U.S.from Compustat and for Japan from the PACAP databa (1975to2001).The longer time ries for the within-country samples allow us to estimate The Accounting Review,October2006
