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Accounting Information Quality, Free Cash Flow, and Over-Investment: Evidence from an Emerging Market -a Study in Iran

Afsharmehr, Mohammad; Nasseri, Ahmad; Yazdifar, Hassan; Albahloul, Mohammad

Authors

Mohammad Afsharmehr

Ahmad Nasseri

Hassan Yazdifar



Abstract

This paper investigates the relationship between accounting information quality (AIQ) and over-investment based on data from 110 companies in the Tehran Stock Exchange from 2008 to 2014 and also compares the relationship between AIQ and over-investment in companies with low and high free cash flow. Principal-Agent Theory and Information economic theory suggest that an increase in accounting information quality can decrease over-investment. AIQ by Dechow and Dichev’s Model (2002), over-investment by Richardson’s Model (2006), and free cash flow by Yuan and Jiang’s Method (2008) were measured and hypotheses were tested using Yuan and Jiang’s Model (2008). Results of this investigation show that there is a reverse and meaningful relationship between AIQ and over-investment; which means that improvement of AIQ can decrease over-investment. Also, the effects of AIQ on over-investment in companies with high free cash flow is greater than in companies with low free cash flow.

Journal Article Type Article
Acceptance Date Mar 15, 2024
Online Publication Date Apr 29, 2024
Publication Date Apr 29, 2024
Deposit Date Jun 3, 2024
Publicly Available Date Apr 30, 2025
Journal Journal for International Business and Entrepreneurship Development
Print ISSN 1549-9324
Electronic ISSN 1747-6763
Publisher Inderscience
Peer Reviewed Peer Reviewed
Volume 15
Issue 4
DOI https://doi.org/10.1504/JIBED.2023.138123
Publisher URL https://www.inderscience.com/offer.php?id=138123