Does Financial Reporting Matter? Evidence from Accounting Standards

48 Pages Posted: 12 Jan 2018  

Andrew Bird

Carnegie Mellon University

Aytekin Ertan

London Business School

Stephen A. Karolyi

Carnegie Mellon University - David A. Tepper School of Business

Thomas Ruchti

Carnegie Mellon University - David A. Tepper School of Business

Date Written: January 9, 2018

Abstract

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

Bird, Andrew and Ertan, Aytekin and Karolyi, Stephen A. and Ruchti, Thomas, Does Financial Reporting Matter? Evidence from Accounting Standards (January 9, 2018). Available at SSRN: https://ssrn.com/abstract=3098916 or http://dx.doi.org/10.2139/ssrn.3098916

Andrew Bird

Carnegie Mellon University ( email )

Pittsburgh, PA 15213-3890
United States

Aytekin Ertan

London Business School ( email )

Sussex Place
Regent's Park
London, NW1 4SA
United Kingdom
442070008131 (Phone)

Stephen A. Karolyi

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States
4122682909 (Phone)

Thomas Ruchti (Contact Author)

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

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