The Impact of Financial Reporting Quality on Interaction between Agency Costs and Speed of Adjustment of Stock Price

Document Type : Research Paper

Authors

1 Department of accounting, Tabriz branch, Islamic Azad University, Tabriz, Iran

2 Bonab Univercity

3 PhD Student., Faculty of Management-Department of Accounting, Islamic Azad University, Bonab, Iran

Abstract

Introduction
       The influence of information on prices is at the core of the market. This means that, as soon as new information is released, instantaneous and real-time reaction is created, changing prices in this way. In the financial literature, it is believed that low quality of information is economically costly and delays the stock price adjustment process. Delay in price adjustment is risky for the buyer and seller, and this risk is due to the lack of full reflection on the price information. Full and immediate reflection of the information may have a negative or positive effect on the stock price (Kalen & et al. 2012). The aim of this study is to examine the effect of financial reporting quality on the interaction between agency costs and speed of adjustment of stock price.
 
Hypothesis
The agency costs of eight indicators of Pantzalys & Park (2013), and the speed of adjustment of stock price by the Hue & Muskwitzen (2005) method were used. Thus research hypotheses developed as follows:
H1. Agency costs have an impact on the speed of adjustment of stock price.
H2. Financial reporting quality have an impact on the interaction between agency costs and the speed of adjustment of stock price.
 
Methods
The samples of this study are the companies listed on the TSE. The approached data for this study were the years 2009 to 2017. The method of research is correlation and causal. The test method hypotheses are correlation test and regression.
 
Results
The results of this study showed that the agency costs have a negative and significant effect on the speed of adjustment of stock price, and there is no evidence of the moderating role of financial reporting quality in the interaction between the agency costs and the speed of adjustment of stock price.
 
Conclusion
It can be deduced that companies that have the phenomenon of information asymmetry and hence higher agency costs have less speed of adjustment of stock price. The results of the research indicate that the financial reporting quality of companies do not weaken the relationship between the agency costs and the speed of adjustment of stock price. Therefore, theoretical foundations are not consistent with the results of this hypothesis. According to the results of this hypothesis, in the Iranian capital market, financial reporting quality does not modify the relationship between agency costs and the speed of adjustment of stock price.


Keywords

References

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History

  • Receive Date: 11 July 2018
  • Revise Date: 13 November 2018
  • Accept Date: 10 December 2018

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