Financial Statement Comparability and Expected Crash Risk

49 Pages Posted: 6 Jan 2016 Last revised: 26 Oct 2017

See all articles by Jeong-Bon Kim

Jeong-Bon Kim

City University of Hong Kong

Leye Li

UNSW Sydney

Louise Yi Lu

Australian National University

Yangxin Yu

City University of Hong Kong

Date Written: January 1, 2016

Abstract

This study examines the impact of financial statement comparability on ex ante crash risk. Using the comparability measures of De Franco, Kothari, and Verdi (2011), we find that expected crash risk decreases with financial statement comparability, and this negative relation is more pronounced in an environment where managers are more prone to withhold bad news. We also provide evidence that comparability can mitigate the asymmetric market reaction to bad versus good news disclosures. Our results suggest that financial statement comparability disinclines managers from bad news hoarding, which reduces investors’ perceptions of a firm’s future crash risk.

Keywords: financial statement comparability, expected crash risk, bad news hoarding

JEL Classification: G12, M41

Suggested Citation

Kim, Jeong-Bon and Li, Leye and Lu, Louise Yi and Yu, Yangxin, Financial Statement Comparability and Expected Crash Risk (January 1, 2016). Journal of Accounting & Economics (JAE), 61 (2-3), pp. 294-312, April-May 2016, Available at SSRN: https://ssrn.com/abstract=2709908

Jeong-Bon Kim

City University of Hong Kong ( email )

Department of Accountancy
83 Tat Chee Avenue
Kowloon Tong
Hong Kong
852-3442-7909 (Phone)

Leye Li

UNSW Sydney ( email )

UNSW Sydney Australia
Sydeney, NSW 2052
Australia

HOME PAGE: http://www.business.unsw.edu.au/our-people/leye-leonard-li

Louise Yi Lu

Australian National University ( email )

Yangxin Yu (Contact Author)

City University of Hong Kong ( email )

Hong Kong

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