The effect of accounting information quality on the relation between financial constraints with stock returns and new investment

The quality of accounting information can affect various variables and phenomena in the financial field. This study investigated its effect on the relationship between financial constraints with stock returns and new investment.

Using the regular screening sampling method, 148 companies listed on the Tehran Stock Exchange for the years 2013 to 2019 were selected and tested with the help of multiple regression model with fixed effects.

Findings show that an increase in the quality of accounting information is associated with an increase in stock returns, and the improvement in the quality of accounting information is associated with new investments. The quality of accounting information weakens the negative relation between financial constraints and stock returns, but with the increase in the quality of accounting information, the positive relationship between financial constraints and new investments is strengthened.

the capital market reacts positively to the quality of accounting information, which leads to increase in stock return and new investment. On the other hand, the increase in financial constraints leads to a significant decrease in stock returns but an insignificant increase in new investments. And accounting information quality has a significant effect on these relations.

Contribution: 

Accounting information quality reduces the negative impact of financial constraints on stock returns. Financial constraints have no relation with new investment, but with the increase in the quality of accounting information, the positive relationship between financial constraints and new investment is strengthened.