FINANCIAL REPORTING QUALITY AND INVESTMENT IN SUSTAINABLE DEVELOPMENT - EVIDENCE FROM VIETNAM

Agency theory explains that the conflict of interest exists in the relationship between the firm's owners and managers as a result of situation where there is separation of the ownership from the control of a corporation. This conflict is especially noticeable in all investment decisions. With respect to investment in sustainable development, the over-investment brings certain individual benefits to managers but it is not expected by owners. To deal with this issue, the significant amount of research suggests that high financial reporting quality would reduce the agency problem due to improved quality of disclosed financial information. The purpose of this paper is therefore to empirically investigate the impacts of financial reporting quality on investment in sustainable development from the agency theory. 800 observations coming from 160 Vietnamese public enterprises were used to conduct generalized method of moments with balanced panel data during the period of 2010 - 2014. Regression result confirmed that higher-quality financial reporting would reduce the issue of information asymmetries, consequently mitigating inefficient investment in sustainable development, given the fact that managers are attracted to opportunistically invest in the projects of sustainable development, known as their own self-interests.