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The Benefits of Financial Statement Comparability

54 Pages Posted: 11 Sep 2008 Last revised: 15 Mar 2011

Gus De Franco

Tulane University - A.B. Freeman School of Business

S.P. Kothari

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Rodrigo S. Verdi

Massachusetts Institute of Technology (MIT)

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Date Written: March 14, 2011

Abstract

Investors, regulators, academics, and researchers all emphasize the importance of financial statement comparability. However, an empirical construct of comparability is typically not specified. In addition, little evidence exists on the benefits of comparability to users. This study attempts to fill these gaps by developing a measure of financial statement comparability. Empirically, this measure is positively related to analyst following and forecast accuracy, and negatively related to analysts’ dispersion in earnings forecasts. These results suggest that financial statement comparability lowers the cost of acquiring information, and increases the overall quantity and quality of information available to analysts about the firm.

Keywords: Earnings Quality, Analysts, Earnings Attributes

JEL Classification: G29, M41, M45, G34

Suggested Citation

De Franco, Gus and Kothari, S.P. and Verdi, Rodrigo S., The Benefits of Financial Statement Comparability (March 14, 2011). Available at SSRN: https://ssrn.com/abstract=1266659 or http://dx.doi.org/10.2139/ssrn.1266659

Gus De Franco

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

S.P. Kothari

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E52-325
Cambridge, MA 02142
United States
617-253-0994 (Phone)
617-253-0603 (Fax)

Rodrigo S. Verdi (Contact Author)

Massachusetts Institute of Technology (MIT) ( email )

Sloan School of Management
100 Main Street E62-666
Cambridge, MA 02142
United States
(617) 253 2956 (Phone)

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