The role of financial reporting in resolving uncertainty about corporate investment opportunities

Ferracuti, Elia; Stubben, Stephen

doi:10.1016/j.jacceco.2019.101248

Cited by 48 publications

(21 citation statements)

References 63 publications

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“…Inspired by Ferracuti and Stubben (2019), we identify narrative disclosures about R&D activities and the level of granularity in financial statements as financial reporting characteristics that are relevant to mitigating investment uncertainty. Narrative R&D disclosures in financial reports help information users understand R&D efforts (R&D strategy, progress, collaboration, competition, employees, and funding) associated with technological innovation.…”

Section: Hypotheses Developmentmentioning

confidence: 99%

“…However, when firms invest in follow-on innovation by, for example, allocating resources to scientific research and new product development, they face significant uncertainty. Moreover, fears about the cost of suboptimal decisions often lead managers to hold back their investment (Holmstrom 1989;Czarnitzki and Toole 2011;Ferracuti and Stubben 2019). This study examines the role of information transparency in reducing the uncertainty associated with investment in follow-on technological innovation.…”

Section: Introductionmentioning

confidence: 99%

“…We argue that transparency in financial reporting helps resolve uncertainty about the outcome of investment in technological innovation and, in so doing, facilitates investment in the follow‐on discoveries. When investment decisions can be delayed and are even partially irreversible, firms become cautious and hold back investment in the face of uncertainty (Bernanke 1983; Dixit and Pindyck 1994; Leahy and Whited 1996; Guiso and Parigi 1999; Ferracuti and Stubben 2019). Considering that innovation is characterized as a long‐term, intangible investment with high uncertainty (Hall 2002; Kothari et al 2002), it follows that the negative effects of uncertainty would be more pronounced for an investment in technological innovation than for a capital investment.…”

Section: Introductionmentioning

confidence: 99%

“…In the presence of uncertainty, managers cannot invest efficiently because they lack the information that they would need to effectively distinguish between investment opportunities. Ferracuti and Stubben (2019) note that while much of the prior literature explores external capital allocation and the effects of information asymmetry in the context of agency conflicts between managers and capital providers, financial reporting can also help resolve uncertainty about investment outcomes and facilitate internal decision‐making on capital allocation. We fill this gap in the literature by examining the role of financial reporting in mitigating uncertainty about investment outcomes 4…”

Section: Introductionmentioning

confidence: 99%

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Information Transparency and Investment in Follow‐on Innovation*

Chen

Kim

Yang

et al. 2023

Contemporary Accting Res

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This study examines the role of information transparency in facilitating peer firms' investment in follow‐on innovation. We capture information transparency with both textual and numerical information disclosed in 10‐Ks. Using patent citations to proxy for investment in follow‐on innovation, we predict and find a positive association between transparency at the knowledge source and follow‐on innovation. We further show that the effect of information transparency varies with the degree of uncertainty around technological innovation. Thus, the evidence suggests that information transparency facilitates investment in follow‐on innovation by resolving uncertainty associated with investment in technological innovation. An analysis using the cited firms' going‐private decision as a negative shock to information transparency confirms the significant effect of a cited firm's disclosure on its decision to invest in follow‐on innovation. Our study contributes to the literature on the positive externalities of peer‐firm disclosures and highlights the important role of information transparency in shaping innovation investment decisions.

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Section: Hypotheses Developmentmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Information Transparency and Investment in Follow‐on Innovation*

Chen

Kim

Yang

et al. 2023

Contemporary Accting Res

View full text Add to dashboard Cite

show abstract

“…Besides, another factor that can influence investment decision-making is financial reporting quality. Financial reporting quality affects investment decisions to reduce investment yield uncertainty (Ferracuti and Stubben 2019). Other research suggests that financial reporting quality can improve investment decisions because it reduces the mismanagement of financial information between managers and investors (Roychowdhury, Shroff, and Verdi 2019).…”

Section: Introductionmentioning

confidence: 99%

Analysis of Investment Decisions in Sharia Cooperatives: Does Sharia Accounting Standards Affect?

Khoerulloh

Janwari

2021

Econ. J. Ekon. Islam

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Investors in sharia cooperatives in Majalengka Regency suffered losses due to its administrators and managers who were not transparent in reporting their finances. This research aims to determine the effect of the application of sharia accounting standards and human resource competencies on investment decisions through financial reporting quality. The analytical techniques used in this study use path analysis. The results showed that the application of Sharia accounting standards had no significant adverse effect on investment decisions through financial reporting quality with an original sample value of -0.021 and Pvalue 0.554 0.05. In contrast, human resource competence significantly affected investment decisions through financial reporting quality with original sample values of 0.403 and Pvalue of 0.044 0.05. The implication of this research is to improve sharia cooperative management in financial performance to attract members to invest. The novelty of this research is the motive of investing in sharia cooperatives.Abstrak: Investor pada koperasi syariah di Kabupaten Majalengka mengalami kerugian karena ulah para pengurus dan pengelolanya yang tidak transparan dalam melaporkan keuangannya. Penelitian ini bertujuan untuk mengetahui pengaruh penerapan standar akuntansi syariah dan kompetensi sumber daya manusia terhadap keputusan investasi melalui kualitas laporan keuangan. Teknik analisis yang digunakan dalam penelitian ini menggunakan analisis jalur. Hasilnya menunjukkan bahwa penerapan standar akuntansi syariah berpengaruh negatif tidak signifikan terhadap keputusan investasi melalui kualitas laporan keuangan dengan nilai original sample sebesar -0.021 dan Pvalue 0.554 0.05, sedangkan kompetensi sumber daya manusia berpengaruh positif signifikan terhadap keputusan investasi melalui kualitas laporan keuangan dengan nilai original sample sebesar 0.403 dan Pvalue 0.044 0.05. Implikasi dari penelitian ini adalah meningkatkan manajemen koperasi syariah dalam kinerja keuangan sehingga menarik anggota untuk berinvestasi. Kebaruan dari penelitian ini adalah motif investasi pada koperasi syariah.

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