Document Type : Original Article
Authors
1
Master's Degree in Economics Majoring in Economic Systems Planning, Department of Economic, Faculty of Industrial Engineering and Management Shahrood, Shahrood University of Technology, Shahrood, Iran.
2
Assistant Professor of Accounting, Department of Accounting, Faculty of Industrial Engineering and Management Shahrood, Shahrood University of Technology, Shahrood, Iran.
3
Associate Professor of Economics, Department of Economic, Faculty of Industrial Engineering and Management Shahrood, Shahrood University of Technology, Shahrood, Iran.
4
Assistant Professor of Finance Management, Department of Management and Economics, Faculty of Humanities and Social Sciences, Golestan University, Gorgan, Iran.
Abstract
1- INTRODUCTION
Recent financial scandals have undermined investor confidence in corporate financial statements, making the efficiency of investment and the qualitative attributes of earnings increasingly critical for financial decision-making. In economic and commercial environments, investment is a key tool to prevent stagnation and promote sustainable growth. Managers can generate maximum returns for shareholders by optimally allocating resources and exploiting profitable opportunities. However, resource constraints and information asymmetry highlight the importance of investment efficiency, which is achieved when overinvestment is prevented, resources are directed to projects with positive net present value, and shareholder wealth is enhanced. In this context, understanding earnings quality and its impact on investment efficiency is essential, as it can guide more effective and sustainable decision-making in capital markets.
2- THEORETICAL FRAMEWORK
According to agency theory, managers may engage in projects with negative net present value for personal gain, leading to overinvestment. Financial reporting quality and earnings quality elements - including earnings persistence, transparency, conservatism, and smoothing - can limit opportunistic behaviors and enhance access to financial resources. Companies with stable, regular, and predictable earnings generally demonstrate higher earnings quality, allowing investors and managers to make better-informed decisions. Earnings persistence helps forecast future cash flows and profits, transparency increases investor confidence and reduces inefficient investment, and conservatism mitigates the risks of overinvestment. Conversely, earnings smoothing and opacity can negatively affect investment efficiency. Empirical studies across various countries and industries show that a combination of persistence, transparency, and conservatism enhances investment efficiency and reduces financial risk. The present study innovatively examines, for the first time in Iran, the comprehensive impact of earnings quality attributes on investment efficiency in companies listed on the Tehran Stock Exchange.
3- METHODOLOGY
This study examines 120 companies listed on the Tehran Stock Exchange over the period 2013-2023. Hypotheses were tested using multiple regression models applied to panel data. The dependent variable is investment efficiency, while the independent variables are earnings quality attributes, including earnings smoothing, persistence, transparency, and accounting conservatism. Descriptive statistics and Pearson correlation coefficients were used to examine relationships between variables. This approach enables a detailed analysis of the effects of each earnings quality element on investment efficiency and the comparison of their relative significance.
4- RESULTS & DISCUSSION
The findings indicate that enhancing earnings quality significantly improves investment efficiency. Earnings persistence and conservatism have a positive and significant effect, ensuring that financial resources are allocated to projects with positive net present value and promoting optimal investment. Earnings transparency similarly enhances investment efficiency by reducing uncertainty and increasing investor confidence. In contrast, earnings smoothing has a negative and statistically non-significant effect, while earnings opacity has a negative and significant effect, reducing the effectiveness of capital allocation and increasing inefficient investment. Overall, companies that improve earnings quality allocate resources more efficiently, and earnings quality serves as a critical indicator for evaluating corporate investment performance. These results underscore the importance of qualitative earnings attributes in guiding investment decisions and achieving sustainable financial outcomes.
5- CONCLUSIONS & SUGGESTIONS
The results suggest that improving earnings quality - particularly by enhancing persistence, transparency, conservatism, and managing smoothing appropriately - can significantly optimize resource allocation, increase investment efficiency, and support sustainable corporate growth. Managers are encouraged to focus on these qualitative aspects, while investors should consider these factors in their decision-making. Regulatory authorities are recommended to strengthen standards for transparency and conservative accounting practices, thereby promoting efficient investment. Additionally, the Tehran Stock Exchange can facilitate informed investment decisions by regularly providing relevant earnings information. Future research could investigate the effects of earnings quality on investment efficiency across different industries, its interaction with corporate governance, its impact on firm valuation, tax planning, and corporate social responsibility.
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