The Impact of Management Characteristics on Investment Efficiency: Examining the Mediating Role of Financial Reporting Quality

Abstract

The role of management characteristics is very little known to the extent of an ability to explain the level of effective investment with potential impact of quality financial reports. Being an accounting and finance student, the area under discussion enhanced the motivation to conduct a research. Several research studies revealed personal attributes of top management team members to check the possible influence on Investment efficiency through positive NPV. Further, it was found that the studies ignored the fact of establishing the efficiency of the firm’s investment which might be influenced by many of the management characteristics. This confirms the notion that more reputed TMT can make the financial reports more reliable through which a true picture of the firms can be made available to the stakeholders. This contextual gap motivated to investigate the impact of TMT on InvEff and FRQ in Pakistan’s non-financial sector. TMT descries the MC perspective as team size, business education, former executive experience, gender diversity in the team, average tenure of team members, CEO dominance and compensation, and team affiliation, Investment Efficiency and financial reporting quality elements measured by discretionary revenues, discretionary accruals and working capital accruals. The data comprise of 251 non-financial PSX listed firms from year 2003 to 2018 (4016 firm years) to achieve the sought objectives and to build a panel data on fourteen study variables. The data are collected from four main sources: State Bank of Pakistan, PSX, annual reports. Certain TMT related data were hand-collected using personal contacts and references. Stepwise/hierarchical regression and correlation analysis have been used as tools for testing the reliability of research hypotheses. The research discovers that companies with stronger and more respectable TMTs complement the relationship with investment efficiency. Like wise, six out of eight TMT attributes showed significant relationship with FRQ. Furthermore, FRQAgg complements its relation with InvEff and it also mediates the impact of TMT on investment efficiency. The point of conclusion is that by having better TMTs, the investment distortions can be eliminated. Therefore, it is recommended that firms must emphasize on well-reputed TMTs to reduce accounting information asymmetry to improve the quality of reporting and Investment efficiency.