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The Usefulness of Financial Accounting Information: Evidence from the Field

114 Pages Posted: 28 Jul 2017 Last revised: 19 Oct 2017

Stefano Cascino

London School of Economics

Mark Clatworthy

University of Bristol, Department of Accounting and Finance

Beatriz Garcia Osma

Universidad Carlos III de Madrid - Department of Business Administration

Joachim Gassen

Humboldt University of Berlin - School of Business and Economics; Humboldt University of Berlin - Center for Applied Statistics and Economics (CASE)

Shahed Imam

University of Warwick - Warwick Business School

Date Written: October 19, 2017

Abstract

We provide causal evidence on the determinants of financial accounting information usefulness via an international factorial survey of experienced investment professionals. We examine whether assessments of relevance and representational faithfulness are affected by investment professionals’ information acquisition objectives and by compensation-induced earnings management incentives of the reporting manager. We also present novel descriptive evidence on assessments of the relevance and representational faithfulness of financial accounting information. We find that investment professionals primed with a managerial performance evaluation objective assess financial accounting information to be less relevant than those primed with a firm valuation objective. However, we find no robust evidence that basing managerial compensation on financial accounting information affects assessments of representational faithfulness. Investment professionals’ views of representational faithfulness are positively associated with their assessments of corporate governance quality and negatively associated with the assessed complexity of the accounting measurement system. These findings improve our understanding of target users’ views of fundamental qualitative characteristics of financial accounting information.

Keywords: Decision Usefulness, Financial Reporting Objectives, Investment Professionals, Relevance, Representational Faithfulness

JEL Classification: G18, G38, M41

Suggested Citation

Cascino, Stefano and Clatworthy, Mark and Garcia Osma, Beatriz and Gassen, Joachim and Imam, Shahed, The Usefulness of Financial Accounting Information: Evidence from the Field (October 19, 2017). Available at SSRN: https://ssrn.com/abstract=3008083

Stefano Cascino

London School of Economics ( email )

Department of Accounting
Houghton Street
London, WC2A 2AE
United Kingdom
+44 (0)20 7955 6457 (Phone)
+44 (0)20 7955 7420 (Fax)

HOME PAGE: http://www.lse.ac.uk/accounting/People/profiles/Cascino.aspx

Mark Clatworthy (Contact Author)

University of Bristol, Department of Accounting and Finance ( email )

School of Economics, Finance and Management
8 Woodland Road
Bristol, BS8 1TN
United Kingdom
+44(0)1173310914 (Phone)

Beatriz Garcia Osma

Universidad Carlos III de Madrid - Department of Business Administration ( email )

Calle Madrid 126
Getafe, Madrid, Madrid 28903
Spain

Joachim Gassen

Humboldt University of Berlin - School of Business and Economics ( email )

Spandauer Str. 1
Berlin, D-10099
Germany
+49 30 2093 5764 (Phone)
+49 30 2093 5670 (Fax)

Humboldt University of Berlin - Center for Applied Statistics and Economics (CASE) ( email )

Spandauer Strasse 1
Berlin, D-10178
Germany

Shahed Imam

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

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