Title: The relationship between earnings quality and the probability of efficient investment decisions in Latin America

Authors: Flávio Leonel De Carvalho; Aquiles Elie Guimarães Kalatzis; Andrei Aparecido De Albuquerque

Addresses: Department of Business Administration, Federal University of São Carlos, UFSCar, Itinga, Sorocaba, São Paulo, CEP 18052-780, Brazil ' Department of Business Administration, Federal University of São Carlos, UFSCar, Itinga, Sorocaba, São Paulo, CEP 18052-780, Brazil ' Department of Business Administration, Federal University of São Carlos, UFSCar, Itinga, Sorocaba, São Paulo, CEP 18052-780, Brazil

Abstract: Increased conflicts of interest between managers and shareholders may result from information asymmetry. However, the literature has demonstrated that high-quality accounting information can reduce both the probability of information asymmetry and the problems created therein. In this context, few studies have analysed the impact of earnings quality on investment decisions, particularly in less-developed economies. Thus, this study aims to verify whether the earnings quality of Latin American companies affects the probability of efficient investment decisions, over-investments, and the probability of under-investment. For this purpose, a logit model was used, and data from the companies of seven Latin American countries were analysed. The results indicate that poor earnings quality reduces the probability of efficient investment decisions and increases the probability of under-investment. Thus, our primary conclusion is that there is evidence that high-quality accounting information influences the investment decisions of companies in Latin America.

Keywords: accruals; under-investment; over-investment; efficiency; earnings quality; corporate governance; Latin America; investment decisions; information asymmetry; accounting information.

DOI: 10.1504/LAJMSD.2014.065481

Latin American Journal of Management for Sustainable Development, 2014 Vol.1 No.2/3, pp.229 - 250

Received: 22 Jan 2014
Accepted: 17 May 2014
Published online: 12 Nov 2014 *

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