【正文】 ensitivity analysis, we adopt a balance sheet liquidity approach to address the concern that growth opportunities captured in our cash ?ow measures affect the association between cash ?ows and investments. Almeida, Campello, and Weisbach (2020) suggest that replacing investment with changes in cash holdings will reduce the in?uence of the investment opportunity set, as changes in cash balances should be uncorrelated with investment opportunities in the absence of ?nancing constraints. Consistent with previous results, we ?nd that accounting quality reduces the cash–cash ?ow sensitivity, but that lenders’ access to private information decreases this effect. Jointly, our results con?rm the importance of accounting quality in mitigating the negative effects of information asymmetry on the investment–cash ?ow sensitivity. Our results are also consistent with Biddle and Hilary’s 2020 argument that accounting quality should play a lower role when capital suppliers have alternative informationproblemmitigating mechanisms. However, they are inconsistent with accounting quality playing no role in improving investment ef?ciency in the debt market. Our paper also expands our understanding of the importance of accounting information by identifying the contexts in which the quality of the ?rm’s accounting information is likely to be important. When information asymmetry problems are likely to be the largest, accounting quality is more important. However, in these settings, if outside capital suppliers impose contractual investment restrictions, or have access to private information, then accounting quality is less important. Furthermore, our ?nding that accounting quality reduces the sensitivity of balance sheet liquidity to cash ?ows and that the importance of accounting quality decreases in the face of bank debt suggests that our investment–cash ?ow sensitivity results are not merely due to cash ?ows capturing ?rms’ investment opportunity sets. Section 2 provides background for our study. We discuss our hypothesis development in section 3. We describe our sample in section 4 and our research design in section 5. We discuss our empirical results in section 6 and conclude in section 7. 2 Background Several recent papers examine the effect of accounting quality on ?rms’investments using a variety of approaches. Bushman, Piotroski, and Smith (2020) focus on ?rms’ propensities to promptly withdraw capital from losing projects. They investigate whether ?rms located in countries with accounting regimes characterized by more timely accounting recognition of economic losses reduce capital investments more quickly when investment opportunities decline. They argue that their results support this hypothesis and that this effect is stronger in countries with more diffuse ownership. Verdi (2020) is concerned not only with whether ?rms overinvest in losing projects, but also with whether they underinvest in positive presentvalue projects. His ?ndings that higher accounting quality mitigates the overinvestment problem and that the effect is greater for ?rms with dispersed ownership are similar to those in Bushman et al. 2020. However, he states that he ‘‘cannot conclude that accounting quality is associated with lower underinvestment due to the reduction in information asymmetry between the ?rm and investors’’. Biddle and Hilary (2020) examine how accounting quality affects ?rms’investment–cash ?ow sensitivity. They ?nd that higher accounting quality is associated with lower investment–cash ?ow sensitivity in the United States, but not in Japan. They argue that the difference in results across these two countries is driven by the fact that more capital in the United States is provided through arm’slength transactions with investors who do not have access to private information channels. They do not directly test this interpretation. Furthermore, as they acknowledge, it is not clear which attributes of the private debt markets drive their results. Their tests do not distinguish between lenders’ ability to obtain private information versus their ability to monitor managers once capital is supplied. Thus, the existing research examining the effects of accounting quality on investments concludes that accounting quality improves investment ef?ciency, but the improvements are predominantly in ?rms with diffuse ownership where equity is likely to be the source of capital. Given the results in Bharath et al. 2020, Francis, LaFond, Olsson, and Schipper 2020, and WittenbergMoerman 2020 that ?rms with relatively higher accounting quality are rewarded with a reduction in the cost of debt, it is somewhat surprising that this lower cost of capital would not lead to improved investment ef?ciency. The central argument underlying these papers is that improved accounting quality allows lenders to reduce the costs associated with information asymmetry, suggesting that accounting quality should increase investment ef?ciency even for ?rms that rely on debt ?nancing. In this paper we attempt to reconcile these results by looking at the contexts in the . debt markets in which accounting quality is likely to be the most important. We also attempt to distinguish between the effects of lenders’ private information versus monitoring on the role accounting quality plays in reducing ?nancing constraints and improving investment ef?ciency. Features of . debt markets Diamond (1991) describes the . debt market as a continuum of access to private information and monitoring. At one end of the spectrum are public debt holders who do not have direct access to private information and engage in very little monitoring. At the other end is private bank debt, which is characterized by lenders who have greater acc