Abstract

We investigate whether accounting information system quality has an impact on the level and efficiency of firms’ investments. While firms’ growth depends on investment and financing decisions, accounting information is fundamental for the decision-making of several stakeholders. We assess the accounting information system quality by discretionary accruals, whereas the investment inefficiency is estimated by the residuals of an investment regression for a sample of 3073 Portuguese SMEs from 27 industries, over the period from 2016 to 2021 using a panel regression analysis. The empirical evidence suggests that firms exhibiting higher accounting information system quality tend to invest more. In addition, firms with a lower accounting information system quality have more inefficient investments, as they tend to engage in more overinvestment, although this is not significant for underinvestment. Therefore, this study provides new evidence regarding the impact of accounting information systems on investment that may be useful for several stakeholders, such as managers, creditors, regulators, and academics, by providing evidence for SMEs, where empirical studies are scarce.

Introduction

Accounting information system quality is essential to accurately communicate the current and expected financial/economic position of firms. Financial statements are the main source of information for stakeholders to make decisions (Francis et al. 2004; Yuan et al. 2022). Therefore, it is essential that the information disclosed is transparent and reflects the true and fair view of the firm. Bhattacharya et al. (2013) for the United States and Cerqueira and Pereira (2015) for Europe find empirical evidence that the quality of accounting information contributes to mitigating information asymmetry which in turn means a reduction in the cost of raising funds. Therefore, prior literature has investigated factors that may lead to activities that degrade accounting information system quality, aiming at creating mechanisms to mitigate those activities, thereby improving accounting information system quality. However, Jones (1991) argues that these activities are not easy to detect.

In the context of agency theory and stakeholder theory, the decision-making of investors and creditors depends on the quality of the accounting information system, as mentioned by McNichols and Stubben (2008) and Biddle and Hilary (2006). In the case of investment, it is a fundamental factor for the sustainability and growth of firms, which implies attracting investors and/or obtaining funding from banks. Firms have assets available to develop their economic activities due to their investment ability, affecting their intrinsic value. In addition, Alkafaji et al. (2023) emphasize that investment in information technology tends to reduce the cost of producing accounting information and increases its reliability. The efficiency of a firm’s investment directly affects its survival and development and, in macroeconomic terms, the allocation of resources in society. However, investment inefficiency is usually observed in most firms, specifically overinvestment or underinvestment. Therefore, Ma and Jeong (2022) argue that it is necessary to promote the efficiency of firms’ investment. In the same vein, Gaio et al. (2023) and Lambert et al. (2007) suggest that the increase in the quality of financial reports leads to relevant economic implications in firms, such as the efficiency of investments made. Moreover, Pereira et al. (2023a) find empirical evidence that Portuguese small and medium entities (SMEs) with higher levels of investment tend to have a more conservative accounting practice to capture investors’ confidence.

Conclusions

This study analyzes the effect of accounting information system quality on the investment level and investment efficiency of Portuguese SMEs. From the empirical evidence obtained in this study, it is possible to conclude that firms with a higher accounting information system quality have a greater tendency to invest. This can be explained by the fact that these firms with a higher accounting information system quality exhibit more reliable and transparent financial statements, so they convey greater confidence to investors and banks, and it is possible to attract more financing that can be subsequently allocated to investment in fixed assets.

To further develop the analysis, the association of accounting information system quality with investment (in)efficiency is analyzed. The results suggest that a lower accounting information system quality enhances the trend of overinvestment. In this sense, managers tend to report a better financial performance to capture more funds for financing investments. Therefore, if the financial statements do not report the true and fair view of the firms, managers may fall into the error of overinvestment, namely in projects with a negative NPV, which in turn may lead to a waste of resources and affect the survival and growth of the firms. Regarding the underinvestment, the lower quality the accounting information system, the lower the tendency for underinvestment. This result is the opposite to Linhares et al. (2018) and Verdi (2006) and may be explained by the fact that even if financial statements give the true situation, shareholders may not invest, even with positive NPV opportunities, if the indebtedness level is high, as it would imply that most of the benefits would be captured by the creditors (Pereira et al. 2023a).

Abstract

     We study financial reporting and disclosure practices in China using survey methods similar to prior studies of U.S. firms (i.e., Graham et al., 2005; Dichev et al., 2013). Comparing earnings features, motives to manage and smooth earnings, and voluntary disclosure practices between the two countries, we reveal three major differences. First, Chinese firms exhibit a stronger preference for predictive, relative to verifiable, attributes of earnings that can signal stable firm performance to their stakeholders. Second, smooth earnings are desired by various stakeholders and can be achieved through coordination among connected stakeholders, which is conceptually different from earnings management. Third, Chinese firms consider public disclosure as less relevant in the reduction of the cost of capital. In addition, Chinese firms do not have a bias towards conservative reporting. We explain and reconcile these differences as resulting from some unique institutional features of China. Our study provides novel field evidence that contributes to, expands, and directly corroborates existing empirical studies.

Introduction

     China’s economic significance has grown in recent decades, making it the second largest economy in the world. While China has continuously introduced new regulations to assimilate shareholder-driven practices of financial markets in the West, various institutional differences spanning cultural norms and socio-economic structures still play a considerable role in shaping the Chinese capital market. For instance, prior studies suggest that connections among many non-arm’s length stakeholders contribute to the functioning of capital markets in China (e.g., Ball et al., 2000; Allen et al., 2005; Wong, 2020). In this paper, we use a field-based survey approach to directly study how such institutional factors shape firms’ financial reporting and disclosure practices in China.

     A survey approach enables us to extend prior archival studies, providing evidence about unobservable coordination efforts and private communication channels among non-arm’s length stakeholders in China. While a series of surveys of CFOs at U.S. public firms have allowed academics to validate and reconcile findings on financial reporting and disclosure practices in the accounting and finance literature (e.g., Graham and Harvey, 2001; Graham et al., 2005; Dichev et al., 2013), these survey findings primarily reflect the financial reporting incentives of arm’s length shareholders. Our study extends this prior research by examining firm responses in China, where information demand is shaped by various stakeholders that are non-arm’s length. Moreover, our study complements the extensive archival literature on financial reporting and disclosure practices in China (Lennox and Wu, 2022).

Conclusion

     This paper provides novel field-based evidence on financial executives’ opinions and perceptions for financial reporting and disclosure practices in China. Chinese executives of public firms are directly asked about their incentives and the motives for their firms’ financial reporting and disclosure practices. Using financial executive opinions and motives at U.S. firms as a benchmark, we find that Chinese firms differ in what they consider as “high quality earnings”, in their motives for earnings management and earnings smoothing, and in their incentives to disclose bad news relative to good news voluntarily. Further field-based evidence suggests that these differences are primarily rooted in the institutional differences associated the dominance of retail investors, concentrated ownership structures, weak legal systems, and the role of diverse stakeholder groups – including arm’s length investors and non-arm’s length stakeholders.

     Our field evidence is consistent with a stakeholder-driven corporate governance model in China. Financial reporting is often considered as a vehicle to mitigate agency conflicts between firms and outside shareholders. The Chinese setting highlights that financial reporting may also have the important role of signaling stable performance to a variety of different stakeholders, including customers, suppliers, employees, and the government. Many of them constitute non-arm’s length stakeholders, and may have private communication channels with firms, which undermines the effect of public disclosures to mitigate agency problems. That is, public disclosure in China helps to signal the ability to coordinate among major stakeholders to maintain stable firm performance.

Abstract

JEL classification

Keywords

1. Introduction

2. Theoretical analysis and hypotheses

3. Data and model

4. Empirical results and analysis

5. Further analysis

6. Conclusions

Declaration of Competing Interest

References

Abstract

Based on a macro and micro cross view, we empirically test the interactions among monetary policy, accounting information comparability, and investment efficiency with a sample of A-share listed firms in China from 2005 to 2019. We find that tightening monetary policy will aggravate underinvestment behavior, such as inefficient investment, while improvement in accounting information comparability can effectively mitigate the negative impact of tightening monetary policy on underinvestment, so as to improve firm investment efficiency. Further study shows that, in a period of monetary policy tightening, firms with high agency costs and high financing constraints can significantly reduce underinvestment by improving the comparability of accounting information, thus improving the investment efficiency of firms. After distinguishing the type of firm ownership (state-owned enterprises vs. private enterprises), we find that firms can reduce the effect of insufficient investment during a period of monetary tightening by improving the comparability of accounting information, which is more significant in the sample of private enterprises (PEs).

1. Introduction

Using a series of strict assumptions, such as complete information, no transaction cost, and zero-risk debt financing, some scholars have confirmed that a company’s internal financing and external financing are equivalent, the choice of financing mode does not affect the company’s investment behavior, and purely technical factors – such as future profitability and the capital cost of an investment project – are the only influencing factors that determine the value of a company and can maximize its value when it reaches an optimal investment level. However, this series of assumptions is difficult to achieve perfectly in reality. Trade friction caused by information asymmetry tends to cause a company’s actual value to deviate from the theoretical value in varying degrees in the capital market, which leads to inefficient investment. The inefficient investment includes underinvestment (projects with a positive net present value [NPV] are rejected) and overinvestment (projects with a negative NPV are carried out). This inefficient investment not only reduces the value of a firm at the micro level and hinders the development of the firm but also affects the efficiency of resource allocation in the entire economy at the macro level (Bian and Li, 2009), thus curbing sustainable and healthy development of the macro economy. Fig. 1 illustrates changes in the pattern of inefficient investment in China, in which the sample of listed firms with inefficient investment increased from 1,038 in 2005 to 3,159 in 2019, a rate of 204.335%, and the sample of listed firms with underinvestment was larger than that with overinvestment during the sample period, which indicates that underinvestment is more common than overinvestment. Therefore, it is of great theoretical research value to explore the reasons for low investment efficiency at firms and to reveal which factors can reverse underinvestment by firms and raise investment efficiency at listed firms.

Whether accounting information quality affects the cost of capital has been the central theme of a large and growing literature in accounting, economics, and finance. This literature provides considerable empirical evidence of a negative relation between the two constructs (Armstrong et al. 2013). However, the mechanism behind the relation has been a subject of intense debate (Beyer et al. 2010; Tang 2011). We contribute to the debate by investigating empirically whether and how accounting information quality is related to existing systematic risk factors (i.e., firm betas). In neoclassical theory, a firm’s cost of capital depends exclusively on exposure to systematic risk, i.e., systematic risk factors and risk premiums on these factors (Hughes et al. 2007; Armstrong et al. 2013). Thus, accounting information quality can affect the cost of capital in only three possible ways: First, accounting information quality constitutes an additional systematic risk factor that is distinct from other known such factors; second, accounting information quality itself is not a systematic risk factor but affects risk premiums on known such factors; and third, accounting information quality is somehow related to known systematic risk factors. Previous studies have closely examined the first two possibilities, producing completely contradictory insights. For example, Easley and O’hara (2004), Francis et al. (2005), and Bandyopadhyay et al. (2017) suggest that accounting information quality is a priced systematic risk factor. However, Core et al. (2008) show that accounting information quality represents idiosyncratic risk that can be completely diversified away. Hughes et al. (2007) argue that high accounting information quality decreases risk premiums on known systematic factors, but Veronesi (2000) demonstrates the opposite. Despite these deadlock situations involving the first two possibilities, the third one has received relatively little attention in academic research.

Purpose – The Australian retail food sector, comprising mostly small enterprises, is undergoing change as a result of the innovative supply chain approach adopted. This change has implications across the entire food value chain in Australia. The purpose of this paper is to empirically investigate the adoption of supply chain management practices on small and medium enterprises (SMEs) in the Australian food retail industry. Design/methodology/approach – The study surveys 120 SME retailers in the food sector. A stepwise multiple regression using SPSS version 14.0 was performed on the data. Findings – Statistical results suggest that lean thinking and the quality of information shared can lead to greater efficient supply chain performance. Research limitations/implications – The small sample is the main limitation. The findings bear important implications for further research as understanding these dimensions can help to position key changes and industry improvement that will increase revenue and reduce cost to the SMEs in the food retail supply chain. Practical implications – Adopting lean thinking and improving information sharing in the supply chain can reduce the cost for SMEs. Social implications – This study has unique implications for social sustainability, especially the smaller food enterprises, which are hard pressed to combat the challenges within the food sector. Originality/value – Innovative supply chain management helps SMEs to see beyond the silo mentality and helps them to focus on greater value addition in the supply chain.

Introduction

The food retail sector in Australia is undergoing rapid change. This change is brought about by aggressive price competition (Round, 2006; Smith, 2006), food safety and quality concerns (Rong et al., 2011), private labels (IBISWorld, 2013), industry rationalization and integration of supply chain activities that affect small producers and processors (Van Donk et al., 2008), consumer demand for organic goods (IBISWorld, 2013), and innovation and research and development investment (IBISWorld, 2013). These complexities arise due to globalization and the ultracompetitive marketplace, requiring faster speed to market. Consequently, the urgency of just-in-time production and lean thinking has led to lower stock levels. This then forces stricter quality assurance, which is built into the practice of supply chain management, to improve performance. Further, the change in the business environment points more outsourcing of food retail activities using rapid development of information and communication technology (ICT) tools. Technologies such as electronic data interchange (EDI), radio-frequency identification (RFID), selfcheckout systems, smart phone application/payment and online shopping are increasingly adopted by the major retailers (IBISWorld, 2013). In such an environment, supply chain practices have been observed to impact supply chain performance (Trienekens et al., 2012; Van Donk et al., 2008; Wognum et al., 2011). Australia has three large supermarket chains (Woolworths, Wesfarmers and ALDI) and many other smaller players, for example, Costco, IGA, Australian United Retailer and SPAR (IBISWorld, 2013). Woolworths is the largest chain, accounting for 39.1 percent of market share. Wesfarmers is the second largest player after its merger with the Coles Group (formerly known as Coles Myer) in 2007, accounting for 31.6 percent of market share. ALDI, holding only 4.8 percent, is reshaping the industry through aggressive price strategies, home brands and offering other competitive but socially acceptable practices such as donating their excess produce to Foodbank OzHarvest and SecondBite (IBISWorld, 2013). To facilitate better inventory control, the quality and price of products, Australian food retailers have already implemented supply chain collaboration using contractual arrangements. However, the aggressive price wars between Woolworths and Wesfarmers and their hold on the contract farms are likely to have a negative impact on the small and medium enterprise (SME) food producers and retailers (Woodings, 2012). According to AC Nielsen, Woolworths and Wesfarmers control 80 percent of grocery sales, 50 percent of horticultural sales and 68 percent of meat sales in Australia (Woodings, 2012). The margins of the smaller and independent operators have thus suffered from the fierce competition. In 2012–2013, the turnover of the Australian food industry (which includes food and beverage, grocery, and fresh produce) was $114bn, employing almost 300,000 people. This represents a third of all jobs in the manufacturing sector. Food retail forms the major chunk of this industry by value (80 percent). The Australian Food and Grocery Council estimates that the industry value added (i.e. total value of goods less the cost of production) for food and beverage manufacturing is $24bn. Indeed, the Australian food value chain generates $172bn per annum, with food SMEs forming 98.5 percent of all businesses.

Introduction

Merger and acquisition (M&A) transactions are a widely discussed issue in research on capital markets. Earlier academic research mainly focuses on the motivation for conducting M&As, including obtaining business synergies, consolidating market position, and building a ‘‘commercial empire” (Jensen and Ruback, 1983; Mullin, 1995; Martynova and Renneboog, 2006). The recent literature focuses on whether M&A transactions create wealth value in stock markets, and explore the determinants of this value-creation (Zhang, 2003; Martynova and Renneboog, 2011; Cai and Sevilir, 2012; Tian et al., 2013; Chen et al., 2013a; Kravet, 2014; Mateev, 2017). However, there is little research on the economic consequences of M&As in debt markets. In this paper, we investigate whether and how material asset reorganizations (MARs),1 a special form of M&A transactions, can affect acquirers’ ex post debt financing costs. The theoretical and empirical literature (e.g., Wang et al., 2014) shows that the cost of debt financing is directly related to borrowing firms’ credit risk. Research also finds that creditors rely on the collateral and the quality of accounting information to reduce credit risk and manage loan protection (Chen et al., 2013b; Wang et al., 2014; Pan and Tian, 2016). The MAR is a special form of M&A and has a much higher magnitude than conventional M&A transactions. Thus, MAR implementation could mean that a large amount of assets flow to the acquirer from the target firm, enabling the acquirer to possess considerably greater asset collateral. This would reduce debt financing frictions, lowering the ex post cost of debt. In capital markets, accounting information serves as a crucial ‘‘bridge” between a corporation and its investors, because it reflects the firm’s financial status, operating results and changes in cash flow. When the accounting information is of high quality, it indicates that the firm’s true financial information is reflected to a large extent, so external investors can rely on financial statement numbers and use them to reduce information risk and make rational investment decisions. As a result, the firm’s accounting information quality is negatively associated with its debt financing cost (Francis et al., 2005; Spiceland et al., 2016). In addition, when the acquiring firm’s accounting information quality is higher, MAR implementation can more effectively reduce debt financing costs, because detailed acquisition information must be disclosed to meet China Securities Regulatory Commission (CSRC) requirements, and newly added asset collateral in the MAR transaction is incremental in perfect information environments. In this paper, we focus on China’s capital market because it provides an excellent setting for our research questions. First, the use of collateral to mitigate agency conflicts is more critical and widespread in emerging markets because the information environment is relatively opaque, and liquidation payoffs and competition between capital suppliers are lower than in developed markets (Chen et al., 2013b; Pan and Tian, 2016). Lu et al. (2008) and Chen et al. (2013b) argue that borrowing firms’ accounting information quality can be another effective tool to alleviate debt agency problems in emerging markets, where laws, institutions, and enforcement efforts are generally weak. Collectively, the asset collateral and accounting information quality of borrowing firms are key factors that affect their debt financing cost in emerging markets (Wang et al., 2014). China has the largest emerging capital market. Unlike developed capital markets such as the United States and Europe, it still suffers from poor legal enforcement and weaker information circumstance, although it has grown tremendously, and the investor protection system is gradually being standardized (Li et al., 2013).

A large theoretical and empirical literature examines the role of the accounting information quality (Bushman et al., 2001; Bushman and Smith, 2001; Bagaeva, 2008; Chan et al., 2009; Chan and Lee, 2009; Zhiying et al., 2012; Ran et al., 2015). One line of research (Biddle and Hilary, 2006; McNichols and Stubben, 2008; Biddle et al., 2009; Chen et al., 2011) suggests that higher quality information enables managers to identify better investment opportunities. Several studies also propose that auditor specialization can be used to reduce the information asymmetry problems (Almutairi et al., 2009; DeBoskey et al., 2012; DeBoskey and Jiang, 2012; Yaghoobnezhada et al., 2014): A specialist’s knowledge of the industry can be developed through vast auditing experience, specialized staff training, and large investments in information technology. This industry-specific knowledge allows specialist auditors to provide higher quality audit service by reducing the information asymmetry through their greater ability to detect significant anomalies. Theoretical models (Balsam et al., 2003; Lai, 2011) predict that, despite the limited evidence, a highly acquired audit quality is extremely useful for improving investment efficiencies, especially with respect to overinvestment. Based on these premises, the main purpose of this paper is to combine these two mechanisms and analyze the effect of the accounting information quality (AIQ) and the auditor specialization on investment efficiency.

Purpose This paper investigates how media coverage affects the quality of accouning information for seasoned equity offering (SEO) firms. Design/methodology/approach The sample includes SEOs completed between January 1993 and December 2014 in the United States that are available from Thomson Financial’s Securities Data Company (SDC). The FactSet database was used to measure the amount of media coverage. The paper considers two types of earnings management: accrual-based earnings management and real earnings management. Findings This study finds that the media serves as a watchdog for real earnings management, but does not affect accrual manipulations. These findings hold when endogenous factors affecting firms’ earnings management choices are controlled for, and also when alternative time windows for media coverage are examined. Originality/value This paper is the first to demonstrate that media attention affects the quality of accounting information during equity offerings, as it successfully reduces real earnings management.

Introduction

Does media coverage influence firms’ decisions to engage in earnings management? A voluminous literature documents the importance of financial media in disseminating information to market participants and affecting firms’ financial performance (e.g., Fang and Peress, 2009; Engelberg and Parsons, 2011). Although equally important, the media’s effect on firms’ operational performance is less studied. By exerting pressure for particular managerial decisions, the media can influence firms’ investment in R&D and their quality of innovation (Hirshleifer et al., 2012),stock option grants to CEOs (Kuhnen and Niessen, 2012), and firms’ corporate social responsibility strategies (Zyglidopoulos et al., 2012). This paper examines the seasoned equity offering (SEO) setting to investigate the effect of the media on a key aspect of firms’ operational decision-making: earnings management. The study finds that higher media coverage before the offering corresponds to substantially lower real earnings management (REM) around the offering, but has no significant effect on accrual-based earnings management. This paper’s focus on earnings management is motivated by two factors: the importance of earnings management to a firm’s performance and the responsiveness of earnings management to managerial incentives. On the one hand, a large literature documents the impact of earnings management on shareholder value (e.g., Loomis, 1999), innovation (e.g., Fedyk and Khimich, 2016), and future performance (e.g., Rangan, 1998; Teoh et al., 1998). On the other hand, earnings management is one of the managerial decisions most susceptible to pressure from incentives—for example, managers manage earnings to reach bonus benchmarks or to increase the value of stock option holdings (Healy, 1985), and managers tailor activities management to the most value-relevant areas (Fedyk et al., 2016). These two features make earnings management an ideal domain for observing the effect of the media on managerial decisionmaking within firms. Conceptually, media coverage can affect a firm’s incentives for earnings management through two channels. The first channel is the media’s role as a watchdog, highlighted by Miller (2006), Kuhnen and Niessen (2012), and Dai et al. (2015). The key prediction of the watchdog channel (watchdog hypothesis) is a negative correlation between the volume of preexisting media coverage and the extent of earnings management. The second channel is the possibility that the greater visibility induced by higher media coverage can create incentives to report stronger earnings (Dyck and Zingales, 2002; Schrand and Zechman, 2012; Hribar and Yang, 2016). This channel (attention pressure hypothesis) predicts a positive correlation between a firm’s preexisting media coverage and its earnings management.

China’s stock market has developed rapidly since 1990, when the capital market was set up. The number of listed companies increased from 10 in 1990 to 2063 in 2010. In the 1990–2010 period, about 5253.7 billion yuan in outside capital flowed into listed companies by initial public offerings, seasoned equity offerings or corporate bonds (China Statistical Yearbook, 2011). Whether companies allocated the capital into their own core businesses has become a very important issue, which more and more market participants are focusing on. However, this paper finds that in the 2000–2011 period, about 63.7% of capital was allocated to non-core operating activities, against their original investment plans. There are an average of 53 million yuan for each change, the average 6.7 months of change frequency, and the average 3.6 times change for every firm. Moreover, almost 69.6% of all the changes are inefficient. The frequent changes of the capital investment directions have become a notable problem in China, which severely harms capital allocation efficiency. Many scholars pay attention to this issue and research on it from the views of implementing laws and regulations or improving corporate governance, but the effect of these suggestions is not good to date. Based on this important issue, this paper examines the governance function of accounting information and whether high accounting information quality can form an enforcement mechanism to push management to make capital investment more efficiently. Since China’s Accounting Law was implemented in 1985, the Chinese government has devoted effort to complete the accounting principles system and related rules to improve accounting information quality. In 2006, the Chinese Ministry of Finance issued new accounting principles comprising one basic accounting standard, 38 specific standards and application guides that have been applied to publicly listed companies since 2007. The goal of these standards is to ensure the firms to provide useful accounting information and to help investors make good investment decisions. These accounting standards are created to reduce the information asymmetry between investors and listed companies, helping investors better understand those companies’ risks and thus make more rational investment decisions. However, in China’s current special institutional background, can accounting information also serve a governance function to influence managements’ capital investment choice? There are several objective external forces that enhance the governance function of accounting information in China’s capital market. By the end of 2010, the country’s number of securities investment funds had reached 704, with 2.4228 trillion yuan in total assets (China Statistical Yearbook, 2011). Institutional investors also play an important role in China to dig up and transfer the information disclosed by listed firms, compared with other investors. More importantly, institutional investors can also respond more quickly to abnormal accounting information, ‘‘vote by foot”, and finally improve the market efficiency. We believe that in the long term, high-quality accounting information can help these investors to identify inefficient investments, and in turn incur the pressure on stock price by investors’ voting by foot.

Organizations are becoming progressively aware that information security is an important aspect of their businesses strategy. The concern aware organizations to apply information security risk management (ISRM) to identify the security risks in the organizations and provides a measured, analyzed security risk profile of the critical assets in order to build plans to treat the risks [30,50–52]. Nowadays, there are a number of different types of risk management methods, standards, guidelines and specifications that are available for assessing and managing risk management [13,42]. Most of the methods prescribe a similar process that leads to establishing a scope of the assessment, collecting information, producing intermediary information, and finally quantifying and sorting items such as assets, vulnerabilities, threats and risks, according to a set of parameters. All the ISRM methods only differ from each other in terms of the target community, details of the analytic process, as well as the information they prescribe [28]. Seems the goal of ISRM is basically the same, which is selecting effective preventive measures and combating information threat in an active fashion [11], organizations need to define appropriate controls for reducing or eliminating those risk by using the output of the risk assessment. Therefore, information security department needs to complete all the required planning before starting the actual risk assessment. This because the success of the risk assessment fully depends on the information gathered in order to make concise and accurate security planning decisions. Practically, practitioners systematically gather more information than the use, yet continue to ask for more in order to fulfill the requirements to be met before risk assessment is conducted. According to Kenett and Shmueli [25], basically, there are many different collection tools are available to use to collect information such as surveys, laboratory tests, field and computer experiments, simulations, web searches, observational studies, social network and more. This situation will lead practitioners to easily deflects with grown information and become unmanageable. Much of the information is gathered in a surveillance mode rather than in a decision mode. Furthermore, with the development of information technology [61], organizations tend to collect enormous of information and more complex information resources [33]. Hence practitioners are required to evaluate the collected information resources based on the user’s perspective in order to eliminate all the “garbage” information. This is due to the quality of the output is extremely depends on the quality of the input information, known as the “garbage-in-garbage-out” phenomenon [6,7]. Furthermore, information is a critical resource for organization merely because the quality of information is one of the key determinants of the quality of their decisions and actions [54]. Although there is a wide range of active research and practice in IQ in other application areas [16], there is a need for further research incorporating IQ in ISRM field in order to successfully measure the quality of the information to be gathered in process of gathering and planning risk assessment. In the area of risk management, the concept of what dimensions constitutes IQ in risk management has not been addressed.

The availability of bank financing for small- and medium-sized enterprises (SMEs) is a topic of significant research interest among academics and a crucial issue for policymakers (Berger and Udell 2006; De la Torre et al. 2010). This interest is driven in part by the fact that SMEs play a key role in the creation of wealth and employment of any economy. In addition, banks are the main source of finance for small firms (Cosh and Hughes 1994). Regardless, a number of papers find that SMEs are more financially constrained than large firms, so they frequently experience problems obtaining both their required levels of bank financing and sufficiently favourable conditions of borrowing (see, among others, Cressy 2002; Beck et al. 2005, 2006). One of the often-cited main factors that hampers SMEs financing is opaqueness, which accentuates information asymmetries (Berger and Udell 1998; Berger et al. 2001; Hyytinen and Pajarinen 2008). In the literature, ‘‘opaqueness’’ is often referred to the greater difficulties SMEs encounter in transmitting reliable information about their real status and performance, so that it is difficult for lenders to ascertain if firms have the capacity to pay (risk of adverse selection) and/or the willingness to pay (risk of moral hazard) (Hyytinen and Va¨a¨na¨nen 2006). In an attempt to reduce the inherent risk when granting credit to SMEs, banks seek to formalize both the information gathering process and the loan officer’s decision process. Application forms are developed to standardize information gathering. Banks provide training to loan officers that conveys explicit criteria that should be used to determine the creditworthiness of the borrower (Bruns et al. 2008). Nevertheless, despite banks’ efforts to homogenize the credit decisionmaking process, as De la Torre et al. (2010, 2288) state, ‘‘SME ratings do not lead to the automatic approval of loans, but they rather provide the basis for the risk analyst to evaluate loans and decide on their approval’’. Thus, it is logical to assume that loan officers play a key role in producing and interpreting information, and therefore, personal, perceptual or psychological variables also matter in the credit granting decision (Toft 2002; Scott 2006).

During the past decades, the concept of New Public Financial Management (NPFM) serves the quest to make the public sector more efficient and effective through the use of financial management techniques. In this realm, central governments internationally try to modernize their accounting systems (Lapsley et al., 2009). These accounting reforms respond to the requests for accountability, transparency and decision-usefulness of the information provided by the public sector raised by numerous users (Kober et al., 2010). The calls for improvement in the quality and usefulness of accounting data have been intensified as a result of the recent global financial crisis. The individual reforms in governmental accounting systems might eventually succeed or fail, but the reform processes remain an ongoing phenomenon (van der Hoek, 2005) in the quest for modernizing the public sector. Although the level of success in implementing accounting reforms in the public sector undoubtedly varies, the achievement of the objectives of governmental financial reporting could be used as a benchmark for assessment purposes. The conceptual frameworks developed by the four most quoted accounting standard setting bodies [i.e. the Governmental Accounting Standards Board (GASB) in the USA, the Canadian Institute of Chartered Accountants (CICA), the Australian Accounting Standards Board (AASB) and the International Public Sector Accounting Standards Board (IPSASB)] largely coincide on the objectives of financial reporting; they unanimously agree on the need for financial statements providing useful information to users. The usefulness of accounting information is, however, subject to the accounting basis on which it is reported because the latter appears to affect decision-making (Bergmann, 2012), although the recent trend indicates a generalized move to accrual accounting. Nevertheless, there is an ongoing debate as to whether accrual accounting is indeed the solution to the public sector accounting riddle (Carlin, 2005). On one hand, there are several supra-national agencies such as the International Monetary Fund (IMF), World Bank and Organization for Economics Cooperation and Development (OECD) recommending a move to accrual (Paulsson, 2006; Ellwood and Newberry, 2007). On the other hand, there are many who support the opposite view that the application of accrual accounting by governments that are not ready, in terms of culture and technical ability, to understand its implications could lead to the exact opposite results, such as loss of financial control and difficulties in coping with a more complicated system (Hepworth, 2003; Wynne, 2007). By following the international trend and at the same time by reacting to the turbulent financial environment with the pressing demand for high-quality and useful governmental financial information, the Greek Central Government proceeded in reforming its financial reporting systems. In 2011, the modified-cash basis of accounting superseded the cash basis, as an interim step before moving to accrual accounting (Ministry of Finance, 2009; PwC, 2014). As will be argued later, Greece reacted to both mimetic and coercive isomorphic pressures that resulted in this decision.

The availability of external finance for small- and medium-size enterprises (SMEs) is a topic of significant research interest among academics and a crucial issue for policymakers (Berger and Udell 2006; De la Torre et al. 2010). Especially, a high rate of interest is set on bank debt, as it is the most common source of external finance1 since their size precludes them from accessing capital markets. Even so, SMEs frequently experience problems when trying to access credit (Schiffer and Weder 2001; Beck et al. 2005, 2006, 2008; Hyytinen and Väänänen 2006). The most common argument is the opaqueness generally attributed to SMEs, which accentuates information asymmetries (Berger and Udell 1998; Berger et al. 2001; Mason and Stark 2004; Berger and Frame 2007; Hyytinen and Pajarinen 2008). It can be particularly challenging to collect information about SMEs. It is not unusual for small businesses to have a short history, a lack of formal or public records, or a deficiency of formal control systems (Bruns et al. 2008). This lack of information can put the banks at a disadvantage, by making it difficult to differentiate between high-risk and low-risk borrowers (Stiglitz and Weiss 1981; Berger and Udell 1998). Within this context, relationship lending is particularly relevant (Petersen and Rajan 1994; Boot 2000), as asymmetric information problems tend to be more acute for SMEs than for large firms (Berger et al. 2001). In relationship lending, the bank relies on a range of private information gathered through contact with the firm, their owners and managers and the local community in which they operate (Berger and Udell 2006). Furthermore, banks also use other lending techniques in order to evaluate the firm’s riskiness, such as the evaluation of financial statements or credit-scoring (Berger and Udell 2006). In addition, trying to minimise the probability of error, banks seek to formalise both the information-gathering process and the loan officer’s decision process (Bruns et al. 2008). However, despite all formal procedures to support the decision to grant credit, in many (or even most) cases, credit risk management is not automated, and it is ultimately based on a loan officer’s judgement and perceptions (De la Torre et al. 2010).