The Role of Financial Reporting Quality as an Intermediary Variable in The Relationship Between The Quality of Accounting Information and The Quality of Financial Decision-Making in An Information Asymmetric Environment

Abstract

Improving the quality of accounting information is one of the most prominent challenges facing contemporary organizations in a business environment characterized by complexity, competitiveness, and high levels of uncertainty. In this context, financial decision-making no longer relies on personal experience or intuitive estimations, but rather increasingly depends on information outputs prepared according to accounting and professional standards that reflect the true financial performance and economic position of the entity. This study, accordingly, aims at building a theoretical framework that explains the relationship between the quality of accounting information and the quality of financial decisions, by employing the quality of financial reports as an intervening variable, in light of both agency theory and information asymmetry theory. Literature shows that a practical gap between the quantitative availability of financial reports and their effective analytical use in supporting financial decisions. This gap results from a set of challenges related to the poor quality of accounting information, limited disclosure and transparency, and deficiencies in the analytical skills of some decision-makers. The study adopted a conceptual analytical approach by reviewing accounting literature and related theories, with the aim of developing a model that clarifies the mechanism by which the impact of accounting information quality is transferred to the efficiency of financial decisions. The study posits that the quality of accounting information not only directly impacts the quality of financial decisions, but this impact is further amplified by the quality of financial reports, which reflect the characteristics of information in terms of relevance, reliability, honest representation, and transparency. The study concludes that the quality of financial reports represents a strategic link between the quality of accounting information and the efficiency of financial decisions. This is achieved through its role in reducing information asymmetry, enhancing trust and transparency, improving the efficiency of economic resource allocation, and mitigating opportunistic behaviors arising from conflicts of interest among stakeholders.