Does Financial Reporting Matter? Evidence from Accounting Standards
48 Pages Posted: 12 Jan 2018
Date Written: January 9, 2018
We exploit firms’ voluntary disclosures as a novel firm-specific measure of ex ante sensitivity to individual FASB accounting standards to study the real effects of information regulation. We find that accounting standards impact capital allocation by increasing the cost and reducing the supply of credit and equity financing for sensitive firms. Affected firms respond by drawing down cash reserves and selling more assets compared to insensitive firms. Facing these financial constraints, affected firms cut payout by 2.6% and investment by 3.6%, on average. Our results suggest that accounting standards have economically significant real effects because they reallocate capital in financial markets.
Keywords: information regulation, financial markets, debt contracting, corporate investment, internal sources of funds, payout policy
JEL Classification: G21, G28, G32, M41
Suggested Citation: Suggested Citation