Abstract
This paper investigates the dynamic relationship between mandatory disclosure quality and investment effi- ciency. Through building a three dates' model in which the firm's investment decision is jointly affected by the short-term share price in the capital market and by the total cash flows of the firm, we analyze the impact of strategy of information disclosure of investment efficiency. The results show that when the firm's mandatory disclosure quality is very low, it cannot affect the firm's investment decision; when the firm's mandatory disclosure quality is increasing, it can reduce overinvestment or underinvestment and leads to enhancing investment efficiency. Further, this paper uses 3,726 samples of Chinese listed firms during the period 2008-2013 to test the empirical model and finds that mandatory disclosure qual- ity is negatively associated with underinvestment and overinvestment. Our paper contributes to expand the information disclosure literature by examining the consequences of information disclosure.
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