This paper aims to examine the relationship between accruals quality (AQ) and investment efficiency, with a particular focus on the moderating role of corporate social responsibility (CSR) and the influence of country-level enforcement strength.
Using a cross-country data set comprising firms from 21 countries, the study uses regression analyses to assess the effect of AQ on investment efficiency and the moderating impact of CSR and the influence of country-level enforcement strength. Robustness checks are conducted using CSR pillars, the Heckman two-stage model and two-stage least squares (2SLS) estimation.
The results indicate that higher AQ significantly enhances investment efficiency by mitigating information asymmetry and facilitating optimal capital allocation. Moreover, CSR strengthens this positive relationship by enhancing stakeholder trust and improving access to capital, yielding an additional improvement of approximately 5% in investment efficiency. The interaction between AQ and CSR is particularly pronounced in countries with weaker enforcement environments, where CSR serves as a compensatory mechanism for institutional deficiencies.
This study contributes to the literature on financial reporting quality, CSR and investment efficiency by emphasizing the complementary roles of financial (i.e. AQ) and non-financial (i.e. CSR) information. It offers valuable insights for corporate managers, investors and policymakers, particularly in jurisdictions with weak regulatory institutions, highlighting the role of CSR in enhancing the credibility of financial reporting and promoting sustainable investment practices.
