Investment, Inflation, and the Role of Internal Information Systems as a Transmission Channel

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2021
Authors
Binz, Oliver
Ferracuti, Elia
Joos, Peter
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We examine whether the quality of firms’ internal information systems influences the relation between inflation Shocks and corporate investment, as posited by imperfect information models. We first document a positive relation between inflation Shock and investment, consistent with nominal rigidity breaking the classical dichotomy, i.e., the prediction that nominal variables, such as inflation, do not affect real variables, such as corporate investment. Next, we use responses to the World Management Survey to construct a direct measure of firms’ internal information system quality and find that higher quality mitigates this positive relation. This result suggests that internal accounting quality serves as a transmission channel through which aggregate nominal variables affect real variables at the firm level.
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Investment, Inflation, Accounting Quality
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