Myth: External Financial Reporting Quality Has a 1st Order Effect on Firm Value

12 Pages Posted: 19 Jan 2013 Last revised: 6 Sep 2013

See all articles by Jerold L. Zimmerman

Jerold L. Zimmerman

University of Rochester - Simon Business School

Date Written: December 29, 2012

Abstract

I argue that external financial reporting quality has at best a 2nd order effect on firm value of U.S. publicly traded companies and that attempts to improve a firm’s external reporting quality has a 3rd order effect on these firms’ value. Recognizing that external financial reporting quality is at best a 2nd order effect on firm value imposes an important external validity test on accounting research. If the economic magnitude of the study’s proxy for quality on firm value is “too large,” then the researcher should question the research design strategy and whether correlated omitted variables, endogeneity, or sample selection bias are corrupting the study’s inferences.

Keywords: accounting quality, earnings quality, earnings management, financial reporting quality

JEL Classification: M40, M41

Suggested Citation

Zimmerman, Jerold L., Myth: External Financial Reporting Quality Has a 1st Order Effect on Firm Value (December 29, 2012). Simon School Working Paper No. 12-23, Available at SSRN: https://ssrn.com/abstract=2202207 or http://dx.doi.org/10.2139/ssrn.2202207

Jerold L. Zimmerman (Contact Author)

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States
585-275-3397 (Phone)
585-442-6323 (Fax)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
858
Abstract Views
4,686
Rank
51,768
PlumX Metrics