A Study on the Effect of Quality of Accounting Information on Entity Over-Financialization_Vol. 2 No. 3 (JBM 2025)_Journal of Business and Marketing (ISSN: 3005-5717)

Home > Journal of Business and Marketing (ISSN: 3005-5717) > Vol. 2 No. 3 (JBM 2025) >

A Study on the Effect of Quality of Accounting Information on Entity Over-Financialization

Download PDF

DOI: https://doi.org/10.62517/jbm.202509305

Author(s)

Jijiang Li*

Affiliation(s)

School of Economics and Management, Hubei University of Science and Technology, Xianning, China *Corresponding Author.

Abstract

Accounting information provides the clues for investment decisions. Improvement of quality of accounting information could help reduce the enterprise’s information asymmetry. Accounting information plays an important role in enterprise’s resource allocation. According to the data from China A-share listed company among 2008- 2019, our studies use the empirical method to analyze the effect of quality of accounting information on entity over-financialization. The results show that the worse the quality of accounting information is, the higher the level of entity over-financialization is. Improvement of quality of accounting information could effectively inhibit entity over-financialization. In addition, high quality of accounting information could inhibit the entity over-financialization by alleviating financing constraints and agency conflict between shareholders and managers. Our studies explore a new path of optimizing resource allocations for enterprises, and expand the research field of relationship between quality of accounting information and economic development.

Keywords

Quality of Accounting Information; Entity Financialization; Financing Constraint; Principal-Agent Problem

References

[1] Aboody, D., Hughes, J., & Liu, J. Earnings quality, insider trading, and cost of capital[J]. Journal of Accounting Research, 2005, 43(5), 651-673. [2] Arcand, J. L., Berkes, E., & Panizza, U. Too much finance? [J]. Journal of Economic Growth, 2015, 20(2), 105-148. [3] Ball, R., & Shivakumar, L. Earnings quality at initial public offerings[J]. Journal of Accounting and Economics, 2008, 45(2-3), 324-349. [4] Beck, A. T., Alford, B. A., Beck, M. A. T., & Alford, P. D. B. A. Depression. [M]. University of Pennsylvania Press, 2014. [5] Bhattacharya, N., Desai, H., & Venkataraman, K. Does earnings quality affect information asymmetry? Evidence from trading costs[J]. Contemporary Accounting Research, 2013, 30(2), 482-516. [6] Biddle, G. C., & Hilary, G. Accounting quality and firm‐level capital investment[J]. The accounting review, 2006, 81(5), 963-982. [7] Cecchetti, S. G., Kharroubi, E. ‘Reassessing the impact of finance on growth’, BIS Working Paper No 381, Bank for International Settlements, 2012. [8] Chen, X., Sun, Y., & Xu, X. Free cash flow, over-investment and corporate governance in China[J]. Pacific-Basin Finance Journal, 2016, 37(4), 81-103. [9] De Franco, G., Kothari, S. P., & Verdi, R. S. The benefits of financial statement comparability[J]. Journal of Accounting Research, 2011, 49(4), 895-931. [10] Dechow, P. M., & Dichev, I. D. The quality of accruals and earnings: The role of accrual estimation errors[J]. The accounting review, 2002, 77(s-1), 35-59. [11] Dechow, P. M., Sloan, R. G., & Sweeney, A. P. Detecting earnings management. [J]Accounting review, 1995, 193-225. [12] Duchin, R., Gilbert, T., Harford, J., & Hrdlicka, C. Precautionary savings with risky assets: When cash is not cash[J]. The journal of finance, 2017, 72(2), 793-852. [13] Fazzari, S., Hubbard, R. G., & Petersen, B. Investment, financing decisions, and tax policy[J]. The American Economic Review, 1988, 78(2), 200-205. [14] Goh, B. W., Lim, C. Y., Lobo, G. J., & Tong, Y. H. Conditional conservatism and debt versus equity financing[J]. Contemporary Accounting Research, 2017, 34(1), 216-251. [15] Göx, R. F., & Wagenhofer, A. Optimal precision of accounting information in debt financing[J]. European Accounting Review, 2010, 19(3), 579-602. [16] Hu, Y., Wang, X., & Zhang, J. The Motivation for Financial Asset Allocation: Reservoir or Substitution: Evidence from Chinese Listed Companies[J]. Econ Res J, 2017, 52, 181-194. [17] Jensen, M. C. Agency costs of free cash flow, corporate finance, and takeovers[J]. The American Economic Review, 1986, 76(2), 323-329. [18] Jensen, M. C., & Meckling, W. H. Theory of the firm: Managerial behavior, agency costs and ownership structure[J]. Journal of financial economics, 1976, 3(4), 305-360. [19] Jiang, X., Shen, D., & Li, Y. Does accounting information comparability affect corporate innovation[J]. Nankai Business Review, 2017, 20(04), 82-92. [20] Kaplan, S. N., & Zingales, L. Do investment-cash flow sensitivities provide useful measures of financing constraints? [J]. The quarterly journal of economics, 1997, 112(1), 169-215. [21] Kim, H., & Yasuda, Y. Accounting information quality and guaranteed loans: evidence from Japanese SMEs[J]. Small Business Economics, 2019, 53(4), 1033-1050. [22] Myers, S. C., & Majluf, N. S. Corporate financing and investment decisions when firms have information that investors do not have[J]. Journal of financial economics, 1984, 13(2), 187-221. [23] Orhangazi, Ö. Financialisation and capital accumulation in the non-financial corporate sector: A theoretical and empirical investigation on the US economy: 1973–2003[J]. Cambridge journal of economics, 2008, 32(6), 863-886. [24] Ozkan, N., Singer, Z., & You, H. Mandatory IFRS adoption and the contractual usefulness of accounting information in executive compensation[J]. Journal of Accounting Research, 2012, 50(4), 1077-1107. [25] Rajan, R., & Zingales, L. Financial development and growth[J]. American Economic Review, 1998, 88(3), 559-586. [26] Richardson, S. Over-investment of free cash flow[J]. Review of accounting studies, 2006, 11(2-3), 159-189. [27] Seo, H. J., Kim, H. S., & Kim, Y. C. Financialization and the Slowdown in Korean Firms' R&D Investment[J]. Asian Economic Papers, 2012, 11(3), 35-49. [28] Song, J., & Lu, Y. U-shape relationship between non-currency financial assets and operating profit: Evidence from financialization of Chinese listed non-financial corporates[J]. J Finan Res, 2015, 6, 111-127. [29] Stein, J. C. Agency, information and corporate investment[J]. Handbook of the Economics of Finance, 2003, 1, 111-165. [30] Wang, H., Wang, Q., & Sheng, X. Does Corporate Financialization Have a Non-Linear Impact on Sustainable Total Factor Productivity? Perspectives of Cash Holdings and Technical Innovation[J]. Sustainability, 2021, 13(5), 2533. [31] Xianhuan, H., Yao, W., & Shaohua, W. Who is More Over-financialized: Firms with Rising Performance or Firms with Declining Performance? [J]. Journal of Shanghai University of Finance and Economics, 2019, 21(1), 80-94. [32] Zhang, Y., Zhang, F., & Li, Y. Accounting conservatism, financial constraints and investment efficiency[J]. Accounting Research, 2017, 9(9), 35-40. [33] Zheng, S., Chen, Q., & Gan, S. The Impact of Financialization and Strategy[C]. 3rd International Conference on Economics, Management, Law and Education (EMLE 2017), 2017.