The effect of forward-looking non-financial information (FNFI) on corporate investment efficiency & financing constraint

Subject Areas : Journal of Investment Knowledge

Allah Karam Salehi ¹ ( Department of Accounting, Islamic Azad University, Masjed-soleiman Branch. Masjed-soleiman, Iran )

Received: 2018-05-24 Accepted : 2018-11-12 Published : 2020-12-21

Keywords: Disclosure Quality, Inefficiency of investment, Forward-looking non-financial information, Financing constraint,

Abstract :

Previous research has shown that the high disclosure of corporate financial information can increase the efficiency of the investment. In addition, the mechanism of financial information disclosure and investment efficiency is a kind of reduction of information asymmetry that prevents investment efficiency. Unlike financial information, which is mainly about the past performance of companies, non-financial information, in particular forward-looking non-financial information (FNFI), is about the future development of the company, which can provide information that is more relevant for decision makers. Therefore, the FNFI can reduce information asymmetry between companies and external sources of funding. The purpose of this study was to investigate the effect of forward-looking non-financial information on corporate investment efficiency & financing constraint in listed companies on Tehran Stock Exchange. To this porpuse, a sample of 150 companies during 2010-2016 was selected by systematic elimination sampling. The research method is library and correlation. Forward-looking non-financial information the study consists of seven non-financial indicators and the relationship between research variables by the regression model presented by Tan and Liu (2017) with the pooled data approach have been used. The results show that forward-looking non-financial information can reduce financing constraints and high disclosure quality will intensify the relationship between these two variables. Forward-looking non-financial information can also reduce the inefficiency of investment, and the high disclosure quality will intensify the relationship between these two variables, then alleviate the underinvestment effectively and meanwhile leavelittle opportunity for overinvestment.

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