Abstract
We find that financial statement comparability enhances the ability of current period returns to reflect future earnings, as measured by the future earnings response coefficient (FERC). This suggests that comparability improves the informativeness of stock prices and allows investors to better anticipate future firm performance. In addition, using both the FERC and stock price synchronicity tests, we find that comparability increases the amount of firm-specific information (rather than market/industry-level information) reflected in stock prices. Analysts play an important role in improving stock price informativeness by producing more firm-specific information when comparability is high. These findings suggest that comparability lowers the costs of gathering and processing firm-specific information.
| Original language | English |
|---|---|
| Pages (from-to) | 389-417 |
| Number of pages | 29 |
| Journal | Contemporary Accounting Research |
| Volume | 36 |
| Issue number | 1 |
| DOIs | |
| State | Published - Mar 1 2019 |
Bibliographical note
Publisher Copyright:© CAAA
Funding
* Accepted by Michael Welker. We appreciate helpful comments from Michael Welker, two anonymous reviewers, Ahrum Choi, Seil Kim, Jay Junghun Lee, James Myers, Jonathan Ross, Catherine Sonu, Christian Stadler, Derrald Stice, Steve Young, and other seminar participants at the KAIST-Korea University joint workshop, Lancaster University, Seoul National University, and Sungkyunkwan University, and participants at the 2013 Korean Accounting Association Annual Meeting. We thank Kyle Peterson for providing us with data on accounting consistency and business similarity. We also thank Gerard Hoberg and Gordon Phillips for making the data on product similarity available on their webpage. Linda Myers gratefully acknowledges financial support from the Haslam Chair of Business and the William B. Stokely Faculty Research Fellowship at the University of Tennessee and from the Garrison/Wilson Chair while at the University of Arkansas. David Ziebart gratefully acknowledges financial support from the Von Allmen School PwC Endowed Profes-sorship at the University of Kentucky. †Corresponding author.
| Funders | Funder number |
|---|---|
| Von Allmen School of Accountancy | |
| University of Tennessee | |
| University of Kentucky | |
| University Arkansas |
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics