Does Economic Comparability Discipline Financial Reporting?

64 Pages Posted: 17 Jun 2019 Last revised: 13 Jan 2021

See all articles by Audra L. Boone

Audra L. Boone

Texas Christian University - M.J. Neeley School of Business; European Corporate Governance Institute (ECGI)

William Grieser

Texas Christian University

Rachel Li

University of Alabama - Department of Economics, Finance and Legal Studies

Parth Venkat

University of Alabama - Department of Economics, Finance and Legal Studies

Date Written: January 11, 2021

Abstract

We exploit a pairwise measure of product market differentiation to study the relation between economic comparability and financial accounting fraud. We show that firms with greater economic comparability exhibit a significantly lower incidence of fraud. Importantly, this effect is economically larger than that of most predictors of fraud documented in the literature. To help establish identification, we exploit economic comparability with rivals issuing IPOs, as well as cross-sectional variation in accounting comparability, firm complexity, institutional ownership, and analyst coverage. Our analyses suggest that greater economic comparability enhances the external information environment, which improves external monitoring and disciplines manager reporting behavior.

Keywords: Corporate Fraud, Economic Comparability, Accounting Comparability, Financial Reporting, Product Differentiation, Corporate Governance

JEL Classification: G30, M41, G34

Suggested Citation

Boone, Audra and Grieser, William and Li, Qingqiu and Venkat, Parth, Does Economic Comparability Discipline Financial Reporting? (January 11, 2021). Sixth Annual Conference on Financial Market Regulation, Available at SSRN: https://ssrn.com/abstract=3070375 or http://dx.doi.org/10.2139/ssrn.3070375

Audra Boone

Texas Christian University - M.J. Neeley School of Business ( email )

Fort Worth, TX 76129
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

William Grieser

Texas Christian University ( email )

Fort Worth, TX 76129
United States

Qingqiu Li

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

P.O. Box 870244
Tuscaloosa, AL 35487
United States

Parth Venkat (Contact Author)

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

P.O. Box 870244
Tuscaloosa, AL 35487
United States

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