The Association between Accounting Information Quality, Overinvestment and Free Cash Flow

One of the challenging issues today is economic development. With regard to this subject, the measure of investment is very important; so that, decisions about investment and capital allocation are some of the key and essential decisions in the company. Hence, an entity for investing in various projects, should considers limits or measure of investment according to limited resources. In an inefficient market, information asymmetry and agency conflicts prevent optimal investment and desirable decisions. Overinvestment is an example of a non-optimal investment the main reason for it being the free cash flow of company. Hence, the main object of this research is related to overinvestment of free cash flow of companies. In order to solve or reduce this problem and according to the significant role of the quality of accounting information to reduce information asymmetry, in this study, the role of accounting information quality to reduce overinvestment was studied.