THE INFLUENCE OF FINANCIAL INFORMATION RELIABILITY AND MATERIALITY ON CORPORATE INVESTMENT EFFICIENCY

• Main Author: Alexander, Julio
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/78777
• Institution: Institut Teknologi Bandung

Despite the importance of capital investment for a firm’s sustainability and economic growth, previous research suggests that developing countries still suffer form inefficient investment problems (Sussangkarn, et al., 2011). In particular, author is aware that literature on the relationship between financial information quality and investment efficiency in emerging market, Indonesia for example, has received limited attention in academic research. In Indonesia, the importance of investment efficiency is really evident in property and real estate sector, considering the sector’s potential future expansion. This research empirically analyzes the influence of financial information quality on corporate investment efficiency. Discretionary revenue model is applied to cover reliability and materiality characteristics of financial reports. Research hypothesis is evaluated using a sample of 136 firm-year observations over four years among 34 companies in property and real estate sector listed on Indonesia Stock Exchange 2010 – 2013. Additionally, four control variables: firm size, firm age, asset tangibility, and financial slack are also included for hypothesis testing. For data processing, this research uses panel regression with Fixed-Effects model. The results indicate that there is a significant and very strong positive relationship between financial information quality and corporate investment efficiency. Furthermore, firm size, firm age, and asset tangibility are also significantly and positively associated with firm investment efficiency. Financial slack, however, displays a positive but insignificant relationship with investment efficiency. These findings imply that countries, particularly Indonesia, can benefit from enhanced financial information quality, which is presented through financial reports.