Financial Statement Comparability and Idiosyncratic Return Volatility

International Review of Finance, Forthcoming

Posted: 13 Aug 2018

See all articles by Ahsan Habib

Ahsan Habib

Massey University - School of Accountancy; Massey University

Mostafa Monzur Hasan

Macquarie University

Ahmed Alhadi

Curtin University - School of Accounting; Sultan Qaboos University - Accounting

Date Written: July 20, 2018

Abstract

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

Suggested Citation

Habib, Ahsan and Hasan, Mostafa Monzur and Alhadi, Ahmed, Financial Statement Comparability and Idiosyncratic Return Volatility (July 20, 2018). International Review of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3217082

Ahsan Habib

Massey University - School of Accountancy ( email )

Auckland
New Zealand

Massey University ( email )

Auckland
New Zealand

Mostafa Monzur Hasan (Contact Author)

Macquarie University ( email )

Level 3, Building 4ER,
Sydney, NSW 2109
Australia

HOME PAGE: http://https://researchers.mq.edu.au/en/persons/mostafa-hasan

Ahmed Alhadi

Curtin University - School of Accounting ( email )

Australia

Sultan Qaboos University - Accounting ( email )

P.O. Box 20
PC 123
Muscat
Oman

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