Competition, proprietary costs of financial reporting, and financial statement comparability

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Authors
Imhof, Michael J.
Seavey, Scott E.
Watanabe, Olena V.
Advisors
Issue Date
2018-12-16
Type
Article
Keywords
Proprietary costs , Competition , Comparability , Financial reporting , Public disclosure
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Citation
Imhof, M. J., Seavey, S. E., & Watanabe, O. V. (2018). Competition, Proprietary Costs of Financial Reporting, and Financial Statement Comparability. Journal of Accounting, Auditing & Finance
Abstract

Competitors often pay close attention to rivals’ financial reports. For firms with high levels of proprietary information, competition may increase the costs of public disclosure. Theory suggests that such costs, which we refer to as the proprietary costs of financial reporting, may lead to strategic financial reporting. We find that financial statement comparability is decreasing in the proprietary costs of financial reporting. Our results are robust to the use of alternative measures of comparability and alternative measures of proprietary costs of financial reporting. In addition, theory suggests that financial reports will contain stronger signals of managers’ private information when information asymmetry is high. We show that the negative relation between the proprietary costs of financial reporting and financial statement comparability is stronger for firms with poorer information environments. Together, our findings suggest that through the discretion afforded in Generally Accepted Accounting Principles (GAAP), managers of firms with high levels of proprietary information report in a way that reduces the comparability of their financial statements, particularly when information asymmetry is high.

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Publisher
SAGE
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Book Title
Series
Journal of Accounting, Auditing & Finance;2018
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DOI
ISSN
0148-558X
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