Title: Accounting information quality, free cash flow, and over-investment: evidence from an emerging market - a study in Iran

Authors: Mohammad Afsharmehr; Ahmad Nasseri; Hassan Yazdifar; Mohammad Albahloul

Addresses: University of Sistan and Baluchestan, Iran ' University of Sistan and Baluchestan, Iran ' College of Business, Law and Social Sciences, University of Derby, UK ' Salford Business School, University of Salford, Manchester, UK

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 (2002) model, over-investment by Richardson's (2006) model, and free cash flow by Yuan and Jiang's (2008) method were measured and hypotheses were tested using Yuan and Jiang's (2008) model. 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 are greater than in companies with low free cash flow.

Keywords: accounting information quality; AIQ; over investment; free cash flow; principal-agent theory; information economic theory; Iran.

DOI: 10.1504/JIBED.2023.138123

Journal for International Business and Entrepreneurship Development, 2023 Vol.15 No.4, pp.511 - 532

Received: 18 Oct 2023
Accepted: 13 Nov 2023
Published online: 29 Apr 2024 *

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