Financial Reporting Quality, Debt Maturity and Investment Efficiency

Under neo-classical theory, firms invest until the marginal benefit equals the marginal cost of this investment in order to maximize their values. However, in the Keynesian framework, where expected investment will be determined by the preference for growth or for financial security, and in the agency framework, which considers information asymmetry problems, firms may deviate from their optimal investment levels and hence suffer from underinvestment or overinvestment. This study examines the role of financial reporting quality and debt maturity in investment efficiency. The sample of this study, includes 110 companies listed on the Tehran Stock Exchange during the period 2007-2011 and for processing and testing hypotheses, pooled regression and Estimated Generalized Least Squares (EGLS) methodology are used. The results show that financial reporting quality and lower debt maturity improve investment efficiency. Also, firms with higher (lower) use of short-term debt, exhibit lower (higher) financial reporting quality impact on their investment efficiency.