This study aims to investigate the relationship between conditional conservatism and investment efficiency in the technology sector. Previous studies show evidence of a positive impact of conditional conservatism on investment efficiency, neglecting how this relationship is manifested in high-tech firms. The technology sector’s relevance in modern economies makes it necessary to fill this gap in the literature. Indeed, high-tech firms drive economic growth, productivity gains, and have created new industries and innovative products consequently occupying a central position in modern economies. We developed a regression analysis based on Biddle et al. (2009) in order to investigate the effects of accounting choices in reducing both over and under-investments. The sample analyzed consists of US non-financial firms from 2010 to 2018. Our results confirm that the effect of conditional conservatism on investment efficiency is positive, additionally showing that it is greater in high-tech firms compared to low-tech firms. In addition, we show that this greater effect is due to higher levels of information asymmetry which characterize high-tech firms. This study offers interesting insights for the growing number of researches on the relationship between accounting conservatism and investment efficiency, comparatively showing how this relationship is manifested in high-tech and low-tech firms. The research also contributes to enrich the stream of research on the comparison between high-tech and low-tech firms, highlighting how the differences between these groups of firms significantly impact on investment efficiency. This research has implications for both practitioners and investors. On the one hand, practitioners can make more conscious choices of accounting policies and forecast the potential effects of those choices on the basis of the sector (high-tech versus low-tech). Investors, on the other hand, can make more informed investment decisions to understand how and to what extent the sector (high-tech versus low-tech) influences the positive impact of conditional conservatism on investment efficiency. Results of this study are also beneficial to standard setters.
KEYWORDS: investment efficiency, technology sector, conditional conservatism
