The Role of Financial Reporting Quality in Reducing Information Asymmetry and Improving Investment Efficiency in Listed Companies
Keywords:
financial reporting quality, information asymmetry, investment efficiency, stock exchangeAbstract
In capital markets, financial reporting quality is recognized as a key mechanism for reducing the information gap between managers and investors and enhancing economic decision-making. When information asymmetry is high, resource allocation becomes inefficient, and the likelihood of deviation from optimal investment levels increases. The primary objective of this study is to examine the effect of financial reporting quality on reducing information asymmetry and improving investment efficiency in companies listed on the Tehran Stock Exchange. This research is applied in purpose and descriptive–correlational in method. Data from 120 manufacturing companies were collected and analyzed over the period 2019 to 2023. Financial reporting quality was measured using the Dechow and Dichev (2002) model, and investment efficiency was assessed using the Biddle et al. (2009) model. Data analysis was conducted using multiple regression and EViews software. The results revealed that financial reporting quality has a significant effect on reducing information asymmetry and investment deviations, including both overinvestment and underinvestment. Companies that provide higher-quality financial reports have been more successful in allocating financial resources to profitable projects. High-quality financial reporting is not only an instrument for monitoring managerial behavior but also a critical factor in enhancing transparency, reducing the cost of capital, and increasing investor trust. Improving the quality of financial reporting requires the development of supervisory institutions, professional training, and the reform of corporate governance mechanisms.
References
P. Dechow and I. Dichev, "The quality of accruals and earnings: The role of accrual estimation errors," The Accounting Review, vol. 77, pp. 35-59, 2002, doi: 10.2308/accr.2002.77.s-1.35.
F. Chen, O. Hope, Q. Li, and X. Wang, "Financial Reporting Quality and Investment Efficiency of Private Firms in Emerging Markets," The Accounting Review, vol. 86, pp. 1255-1288, 2011, doi: 10.2308/accr-10040.
Q. Li and T. Wang, "Financial Reporting Quality and Corporate Investment Efficiency: Chinese Experience," Nankai Business Review International, vol. 1, no. 2, pp. 197-213, 2010, doi: 10.1108/20408741011052591.
Y. Badavar Nahandi, S. Ghadiri, and R. Beheshti Nahandi, "The Impact of Accounting Information Transparency on Investment Inefficiency in Companies Listed on the Tehran Stock Exchange," Quarterly Journal of Economic Research and Policies, vol. 21, no. 68, pp. 65-82, 2013.
Y. Hassas Yeganeh and M. Hasani al-Qar, "Investigating the Impact of Financial Reporting Quality on the Relationship between Managerial Overconfidence and Investment Efficiency in Companies Listed on the Tehran Stock Exchange," Empirical Accounting Research, vol. 9, no. 33, pp. 25-54, 2019.
M. Mohammadiyan, "The impact of financial reporting quality on investment decisions: Evidence from Tehran Stock Exchange," ed, 2024, pp. 92-105.
M. Alhani Sahr and H. Eskandar, "The Effect of Financial Reporting Quality and Debt Maturity on Different Types of Investment Inefficiency," Financial Accounting and Auditing Research, vol. 9, no. 3, pp. 95-120, 2017.
M. Karimi, A. Eshagh Zadeh, and M. Salehi Fard, "Investigating the Relationship between Financial Reporting Quality and Corporate Investment Decisions with an Emphasis on the Governance Role of Accounting Information," Scientific-Research Quarterly of Investment Knowledge, vol. 11, no. 2, pp. 27-55, 2022.
A. Zabihzadeh and M. E. Moulaei, "The Impact of Financial Reporting Quality on Managerial Decision-Making in Companies," Quarterly Journal of New Research Approaches in Management and Accounting, vol. 7, no. 88, pp. 18-33, 2023.
M. A. Muhi and M. Benaissa, "The impact of integrated reporting on improving the quality of financial reporting," International Journal of Professional Business Review, vol. 8, no. 5, p. 65, 2023, doi: 10.26668/businessreview/2023.v8i5.1737.
A. Rahimi and A. Kiani, "The Impact of Accounting Comparability on Financial Reporting Quality and Tax Avoidance," Financial Accounting and Auditing Research, vol. 16, no. 1, pp. 187-218, 2024.
S. Omidi Kordeshouli and M. R. Pazhouhi, "The Impact of the Risk Committee on Financial Reporting Quality and Audit Fee," Financial Accounting and Auditing Research, vol. 16, no. 1, pp. 127-149, 2024.
E. Shahabi Rad, K. Faghani Makrani, and A. Zabihi, "A Model for Identifying the Impact of Spiritual Intelligence on Emotional Intelligence and Behavioral Biases Based on Personal Judgment to Improve Investor Decision-Making Process," Financial Accounting and Auditing Research, vol. 16, no. 1, pp. 269-300, 2024.
T. H. Almubaydeen, I. Alnaji, R. Alkabbji, S. Zahran, and M. Kanan, "The effect of electronic auditing in improving the quality of accounting information in the Jordanian industrial companies listed on the Amman stock exchange," in Artificial Intelligence and Economic Sustainability in the Era of Industrial Revolution 5.0. Cham: Springer Nature Switzerland, 2024, pp. 1269-1280.
A. Johri, "Impact of artificial intelligence on the performance and quality of accounting information systems and accuracy of financial data reporting," 2025, pp. 1-25.
M. J. Eslami Zarei, M. R. Pourali, M. Samadi, and M. H. Asgari, "Audit warning test on the financial reporting quality," International Journal of Finance & Managerial Accounting, vol. 10, no. 39, pp. 101-118, 2025. [Online]. Available: http://www.ijfma.ir/article_23632.html.
K. Oberwallner, C. Pelger, and T. Sellhorn, "Preparers' construction of users' information needs in corporate reporting: a case study," European Accounting Review, vol. 30, no. 5, pp. 855-886, 2021, doi: 10.1080/09638180.2021.1961596.
O. Bogdan, V. Burca, A. Domil, C. Pavel, and A. Artene, "NON-FINANCIAL REPORTING OF TOP COMPANIES IN TURBULENT ENVIRONMENT," Economic and Social Development: Book of Proceedings, pp. 45-55, 2023.
A. Losa-Jonczyk, "Communication strategies in social media in the example of ICT companies," Knowledge Management, Trust and Communication in the Era of Social Media, vol. 69, 2020, doi: 10.3390/info11050254.
S. C. Drilia, "The Impact of Internal Control, HR Competence, and Organizational Commitment on Financial Report Quality Regional Government Organization, With IT Utilization as a Moderator (Study on Regional Government Organizations in Southern Sumatera)," International Journal of Asian Business and Management, vol. 4, no. 2, pp. 177-188, 2025, doi: 10.55927/ijabm.v4i2.155.
S. Ali Pour, E. Malekan, and H. Fakhari, "Presenting a Data Envelopment Analysis (DEA) Network Model to Evaluate the Informational Efficiency of Reporting Units," Financial Accounting and Auditing Research, vol. 14, no. 2, pp. 10-48, 2022.
Downloads
Published
Submitted
Revised
Accepted
Issue
Section
License
Copyright (c) 2025 Nazanin Shah Hosseini (Author); Amir Yalfani; Arezo Khosravani (Author)
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
