The Usefulness of Financial Accounting Information: Evidence from the Field
114 Pages Posted: 28 Jul 2017 Last revised: 18 May 2018
Date Written: October 19, 2017
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: Suggested Citation