Improving investment efficiency through financial reporting quality in emerging markets

This study explores the impact of financial reporting quality (FRQ) on firm-level investment efficiency in emerging markets. Using a sample of 6,468 firms from 14 emerging countries over a period from 2007 to 2021, we run pooled ordinary least square (OLS) regressions, panel regressions and generalized method of moments (GMM) regressions to investigate the relationship. We find a positive and significant relationship between FRQ and investment efficiency. This suggests that improved financial disclosures help firms achieve optimal investment levels, potentially mitigating under- or over-investment problems. The findings hold true across various analyses, including pooled OLS, fixed-effects panel regressions and GMM regressions. Our results offer valuable insights for corporate managers, policymakers and financial statement users, as higher FRQ can lead to more efficient resource allocation, improved information transparency and, ultimately, positive effects on firm value. The study presents fresh and novel empirical evidence on the topic by using a large sample of emerging countries. We have reported the results for the whole sample and also at country and industry breakdowns.