Abstract:

Positive Accounting Theory (Watts and Zimmerman, 1978) stipulates that financial reporting has two dimensions: market signaling and monitoring managerial behaviors. Through these signaling and stewardship means, a better financial reporting quality would have significant economic consequences in terms of efficient resources allocation, which results in improving firms' investment decision. In this paper, we examine the impact of financial reporting quality on corporate investment efficiency. Our sample is based on 72 Indonesian stock exchange listed companies for the period 2007-2016. The findings confirm that some characteristics of the financial information, that is, smoothness, appear to increase the investment inefficiency, while others, i.e., accruals quality, conservatism and relevance, seem to have no significant effect on investment decisions.