Events

Prof. Franco Wong
Professor of Accounting
Joseph L. Rotman School of Management
University of Toronto

We investigate whether improved managerial reporting quality (MRQ) results in better investment decisions and test potential channels. We detail a conceptual framework that describes the possible channels by which the MRQ mechanism can improve firms’ investment efficiency, including internal information asymmetry, information uncertainty, and revising managers’ assessments of investment opportunities. To capture an exogenous improvement in MRQ, we use the unexpected application to cross-listed firms of the Sarbanes-Oxley provisions related to internal control attestation. Our base results show that improved MRQ leads to better investment efficiency and our channel tests suggest that reduced internal information asymmetry is the main channel. The tests illustrate how segment data aid in identifying the separate channels of uncertainty reduction, changes to management’s priors about their firm’s investment opportunities, and lowered internal information asymmetry in improving investment efficiency.