A large theoretical and empirical literature examines the role of the accounting information quality (Bushman and Smith, 2001,Bagaeva, 2008,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 auditorspecializationcan be used to reduce theinformation asymmetryproblems (Almutairi et al., 2009,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.

Chen et al. (2011), who examines the relationship between the information quality and investment, find that financial reporting quality enhances investment in private firms in emerging countries. We also expect to find this association in a sample of industrial firms. In relation to the role of the auditor specialization in investment efficiency, to the best of our knowledge, this is the first study that empirically examines its effect on both underinvestment and overinvestment.

As an extension of our research, we examine how the auditor specialization moderates the AIQ effect on investment efficiency, i.e., whether such an AIQ effect on investment efficiency is increasing or decreasing with the presence of a specialist auditor. We could expect both effects:

On the one hand, the reduction of the information asymmetry and more reliable accounting numbers, due to higher AIQ, could lead to a more effective monitoring due to the specialist auditors and, consequently, the AIQ effect on investment efficiency would turn out to be higher for firms with greater AIQ and auditor specialization.

On the other hand, firms with higher accounting quality are likely to help the manager reduce the adverse selection and moral hazard and allow managers to better identify investment opportunities (Biddle and Hilary, 2006). So, under this assumption, we would expect that the importance of AIQ in reducing information asymmetries will be higher in firms whose auditor is an industry specialist than that with a company whose auditor is not a specialist.

Most studies use the discretionary portion as a measure of information quality.Gomariz and Bellesta (2014)consider different proxies for the quality of information: the model ofdiscretionary accrualssuggested byKasznik (1999), the model ofaccrualsquality suggested byDechow and Dichev (2002)and the model of discretionary revenues developed byMcNichols and Stubben (2008).

Our results show that the AIQ reduces overinvestment, while the specialist auditor reduces the underinvestment. Moreover, our results also reveal that the AIQ effect on investment efficiency is positive for the firms whose auditor is an industry specialist, highlighting the substitution role of AIQ and auditor specialization in reducing information asymmetries and monitoring manager's behavior to such a way asexpropriationcan be greatly restricted.

Our paper contributes to a growing body of literature dealing with empirical evidence on AIQ and auditor specialization roles in improving investment efficiency. Our findings reveal that, in this context, the main concern of auditors is overinvestment, because it is through overinvestment that auditors expropriate managers, and that it is only through higher AIQ and auditor specialization could inefficiency be reduced.

Moreover, the present work constitutes the first study to analyze the interaction effect between the AIQ and the auditor specialization on improving investment efficiency, and our findings suggest that both mechanisms can play a substitution role in reducing overinvestment.

Questions:

What is the population? And how do you select the sample?