Financial Statement Comparability and Idiosyncratic Return Volatility
International Review of Finance, Forthcoming
Posted: 13 Aug 2018
Date Written: July 20, 2018
This study examines the association between financial statement comparability and idiosyncratic return volatility. A greater degree of comparability lowers information acquisition costs, reduces the uncertainties associated with performance evaluation, and increases the overall quantity and quality of information available to corporate outsiders, which, in turn, helps investors to understand and evaluate the cash flow and performance of firms more accurately. Therefore, we hypothesise a negative association between financial statement comparability and idiosyncratic return volatility. Using a large U.S. sample from 1981 to 2013, we show that financial statement comparability is associated with lower level of idiosyncratic return volatility significantly. We also find this association to be more pronounced in a poor information environment. This study contributes to the emerging research that stresses the benefits of financial statement comparability.
Keywords: Financial Statement Comparability, Idiosyncratic Return Volatility, Analyst Forecast Characteristics, Financial Reporting Quality
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