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Firms’ Investment Level and (In)Efficiency: The Role of Accounting Information System Quality

Author

Listed:
  • Cláudia Pereira

    (CEOS.PP, ISCAP, Polytechnic of Porto, 4465-004 Porto, Portugal)

  • Beatriz Castro

    (ISCAP, Polytechnic of Porto, Financial Accounting, 4465-004 Porto, Portugal)

  • Luís Gomes

    (CEOS.PP, ISCAP, Polytechnic of Porto, 4465-004 Porto, Portugal)

  • Helena Canha

    (ISCAP, Polytechnic of Porto, Financial Accounting, 4465-004 Porto, Portugal)

Abstract

We investigate whether accounting information system quality has an impact on the level and efficiency of firms’ investments. While firms’ growth depends on investment and financing decisions, accounting information is fundamental for the decision-making of several stakeholders. We assess the accounting information system quality by discretionary accruals, whereas the investment inefficiency is estimated by the residuals of an investment regression for a sample of 3073 Portuguese SMEs from 27 industries, over the period from 2016 to 2021 using a panel regression analysis. The empirical evidence suggests that firms exhibiting higher accounting information system quality tend to invest more. In addition, firms with a lower accounting information system quality have more inefficient investments, as they tend to engage in more overinvestment, although this is not significant for underinvestment. Therefore, this study provides new evidence regarding the impact of accounting information systems on investment that may be useful for several stakeholders, such as managers, creditors, regulators, and academics, by providing evidence for SMEs, where empirical studies are scarce.

Suggested Citation

  • Cláudia Pereira & Beatriz Castro & Luís Gomes & Helena Canha, 2024. "Firms’ Investment Level and (In)Efficiency: The Role of Accounting Information System Quality," IJFS, MDPI, vol. 12(1), pages 1-16, January.
    • Handle: RePEc:gam:jijfss:v:12:y:2024:i:1:p:9-:d:1321988
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    References listed on IDEAS

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    1. Biddle, Gary C. & Hilary, Gilles & Verdi, Rodrigo S., 2009. "How does financial reporting quality relate to investment efficiency?," Journal of Accounting and Economics, Elsevier, vol. 48(2-3), pages 112-131, December.
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    3. Nilabhra Bhattacharya & Hemang Desai & Kumar Venkataraman, 2013. "Does Earnings Quality Affect Information Asymmetry? Evidence from Trading Costs," Contemporary Accounting Research, John Wiley & Sons, vol. 30(2), pages 482-516, June.
    4. Yoshikawa, Hiroshi, 1980. "On the "q" Theory of Investment," American Economic Review, American Economic Association, vol. 70(4), pages 739-743, September.
    5. Antonio Cerqueira & Claudia Pereira, 2015. "Accounting Accruals and Information Asymmetry in Europe," Prague Economic Papers, Prague University of Economics and Business, vol. 2015(6), pages 638-661.
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