Reporting matters: The real effects of financial reporting on financing and investment decisions

This paper gives an overview of how the financial reporting system affects the investment and financing decisions made by managers.

Author:

• Catherine Shakespeare, University of Michigan

Abstract

In this paper, I provide an overview of the research on the real effects of financial reporting on financing and investing decisions made by firms. Accounting influences these decisions through two mechanisms. First, firms make choices about how to report to achieve certain financial statement outcomes, i.e., transaction structuring. Second, the attributes of the financial reporting system itself. Specifically, accounting quality, timely loss recognition and disclosures all influence the financing and investing decisions made by managers. Potential areas for future research are identified.

The full paper will be published in the annual International Accounting Policy Forum special issue of Accounting and Business Research. The paper will be available on the Taylor and Francis website later in 2020.