Pages: 23-42

Abstract

The quality of financial reporting is an important issue which affect the whole accounting practices. The main objective of this research is to investigate the effect of financial reporting quality on investment efficiency among 120 companies listed on Tehran Stock Exchange. Research data are collected over a 10 years period from 2005 to 2014. The results show that there is an inverse significant relationship between overinvestment and financial reporting quality and also underinvestment. In other words, the financial reporting quality improves the efficiency of investment through reducing overinvestment and underinvestment. The results also indicate that there are three effective factors that influence the relationship between financial reporting quality and investment efficiency such as limitation in financing, the level of accumulated cash and free cash flow. But, the limitation in financing has no meaningful effect on the relationship between financial reporting quality and underinvestment.