Understanding the role of financial reporting quality in total factor productivity mispricing

다국어 초록 (Multilingual Abstract)

This study examines whether accounting information quality enhances investors’ perception of firm level productivity. Prior studies have found a negative association between firm productivity and future stock returns from the two different perspectives: low business risk for high productivity firms or investors’ overpricing of firm productivity. This study provides comprehensive evidence that the negative association is a mispricing phenomenon. In addition, as prior literature overlooked the incremental effect of firm size on firm productivity and presents results mainly driven by small sized firms, this study extends the existing literature by incorporating the firm size effect. I find that the market tends to overestimate the predictive information innate to the productivity of small sized firms which is verified by the lower stock returns in the subsequent period. For firms with large firm size, however, investors underestimate firm productivity that is reflected by its’ positive and significant relationship with one year ahead abnormal returns. The pricing inefficiencies are moderated when investors are provided with accounting information that is reliable, transparent, comparable, and strictly audited by external auditors. The results imply that high quality accounting information is a necessary condition for efficient capital allocation regarding firm productivity. Results also provide useful implications to policymakers that capital misallocation, which is one of the major reasons for the long term decline in productivity growth, can be resolved by promoting high financial reporting quality. The paper complements and extends the existing literature by exploring the incremental effects of firm size in examining productivity differentials at the firm level.

목차 (Table of Contents)

• I. INTRODUCTION 1
• II. LITERATURE REVIEW AND HYPOTHESIS DEVELOPMENT 6
• 2.1 Total Factor Productivity 6
• 2.2 Total Factor Productivity and Capital Market Participants 9
• 2.3 Firm Size Effect 11
• III. RESEARCH DESIGN 13
• 3.1 Sample 13
• 3.2 Variable Measurements 14
• 3.2.1 Total factor productivity 14
• 3.3 Hedge Portfolio Analysis 20
• 3.4 Cross Sectional Regression Model 21
• IV. RESULTS 24
• 4.1 Descriptive Statistics and Univariate Correlation 24
• 4.2 Empirical Findings 25
• 4.2.1 Mispricing Phenomenon of Total Factor Productivity 25
• 4.2.2 Rediscovering Total Factor Productivity Mispricing 27
• 4.2.3 Analyst Forecast errors 29
• V. CONCLUSION 31
• I. INTRODUCTION 35
• II. LITERATURE REVIEW AND HYPOTHESIS DEVELOPMENT 43
• 2.1 Firm-level Total Factor Productivity and Market Participants 43
• 2.2 Quality of Accounting Information 45
• 2.3 Hypothesis Development 48
• III. RESEARCH DESIGN 51
• 3.1 Sample 51
• 3.2 Variable Measurements 52
• 3.2.1 Total factor productivity 52
• 3.2.2 Performance matched discretionary accruals 57
• 3.2.3 Accounting Opaqueness 59
• 3.2.4 Abnormal Audit Fee 60
• 3.2.5 Accounting Comparability Measure 62
• 3.4 Cross Sectional Regression Model 64
• IV. RESULTS 65
• 4.1 Descriptive Statistics and Univariate Correlation 65
• 4.2 Empirical Findings 67
• 4.2.1 Mispricing Phenomenon of Total Factor Productivity 67
• 4.3 Accounting Information Quality on Mispricing 69
• 4.4 Additional Accounting Reporting Quality Measures 70
• V. CONCLUSION 73
• REFERENCES 76
• APPENDIX VARIABLE DEFINITIONS 86
• LIST OF TABLES
• Table 1 Sample Selection Criteria 88
• Table 2 Descriptive Statistics 89
• Table 3 Correlation Matrix 90
• Table 4 Quintile Portfolio Returns of TFP 91
• Table 5 Two-way Sort Portfolio Return Performance between TFP and market capitalization 92
• Table 6 The Relationship between TFP and Analyst Forecast Errors 93
• Table 7 The Relationship between TFP and Future Abnormal Return 94
• Table 8 The Effect of Accounting Quality 95
• Table 9 The Effect of Additional Information Quality Characteristics 96
• Table 10 Sensitivity Check: The Interaction Effect of Accounting Quality 97
• LIST OF FIGURES
• Figure 1 Yearly Mean of Firm Performance Conditional on TFP Quintile 99
•