An Input-Based Measure of Financial Statement Comparability

58 Pages Posted: 19 Jul 2018 Last revised: 8 Oct 2018

See all articles by Rani Hoitash

Rani Hoitash

Bentley University - Department of Accountancy

Udi Hoitash

Northeastern University - Accounting Group

Ahmet C. Kurt

Suffolk University

Rodrigo S. Verdi

Massachusetts Institute of Technology (MIT)

Date Written: October 7, 2018

Abstract

We propose a new input-based measure of financial statement comparability (FSC) that captures the degree of overlap in the financial statement line items reported by industry peers. FSC quantifies the extent to which peer firms have similar economic events and accounting transactions as reflected in their financial statements. We validate FSC by showing its use in benchmarking exercises by corporate boards and financial analysts. We then exploit a unique feature of our measure, namely that it allows us to construct finer FSC measures such as income statement versus balance sheet comparability. We show that income statement comparability is particularly useful when forecasting earnings, whereas balance sheet comparability is more important when forecasting balance sheet items such as debt and when assessing credit risk. Our results show that different components of FSC are beneficial in different contexts and for different financial statement users.

Keywords: Financial Statement Comparability, Benchmarking, Analyst Forecasts, Credit Rating Agencies, XBRL

JEL Classification: M41

Suggested Citation

Hoitash, Rani and Hoitash, Udi and Kurt, Ahmet C. and Verdi, Rodrigo S., An Input-Based Measure of Financial Statement Comparability (October 7, 2018). Available at SSRN: https://ssrn.com/abstract=3208928 or http://dx.doi.org/10.2139/ssrn.3208928

Rani Hoitash (Contact Author)

Bentley University - Department of Accountancy ( email )

175 Forest Street
Waltham, MA 02452-4705
United States

Udi Hoitash

Northeastern University - Accounting Group ( email )

360 Huntington Ave.
Boston, MA 02115
United States
671-373-5839 (Phone)

Ahmet C. Kurt

Suffolk University ( email )

Boston, MA 02108
United States

Rodrigo S. Verdi

Massachusetts Institute of Technology (MIT) ( email )

Sloan School of Management
100 Main Street E62-666
Cambridge, MA 02142
United States
(617) 253 2956 (Phone)

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