Please use this identifier to cite or link to this item:

Financing Constraints, Investment, and Financial Reporting

File Size Format  
HARC_2019_paper_93.pdf 1.15 MB Adobe PDF View/Open

Item Summary

Title:Financing Constraints, Investment, and Financial Reporting
Authors:Tomy, Rimmy
Keywords:Financial reporting quality
Financing constraints
Aggressive revenue recognition
Date Issued:29 Aug 2018
Abstract:The literature on financing constraints has found, as evidence of the existence of financing frictions, that decreases in internal financial resources causes firms to reduce investment activity. However, the literature is inconclusive on the effect of financing constraints on R&D versus capital expenditures. Using a novel setting, this paper finds firms that face a negative shock to internal capital do not uniformly cut back on all types of investment, but allocate capital away from investments with uncertain returns. I use the setting of the 1999 Taiwan earthquake, which disrupted the global semiconductor supply chain and increased production costs for a subset of US high-technology manufacturing firms that sourced semiconductor wafers and other components from Taiwan, causing a drain on internal capital. I find firms negatively impacted by the shock did not cutback on capital expenditures, but reduced R&D investment. In additional analysis, I find affected firms became more aggressive in their revenue recognition practices after the shock, potentially in response to an increase in competition from rivals, or to window-dress financial statements prior to raising equity.
Appears in Collections: 19 Financial: Earnings management

Please email if you need this content in ADA-compliant format.

Items in ScholarSpace are protected by copyright, with all rights reserved, unless otherwise indicated.