Competition, Proprietary Costs of Financial Reporting and Financial Statement Comparability

65 Pages Posted: 4 Aug 2018 Last revised: 17 Dec 2018

See all articles by Scott Seavey

Scott Seavey

Florida Atlantic University - School of Accounting

Michael Imhof

Wichita State University - Barton School of Accountancy

Olena V. Watanabe

Iowa State University - Debbie and Jerry Ivy College of Business

Date Written: May 2, 2018

Abstract

Competitors often pay close attention to rivals’ financial reports. For firms with high levels of proprietary information, competition may increase the costs of public disclosure. Theory suggests that such costs, which we refer to as the proprietary costs of financial reporting, may lead to strategic financial reporting. We find that financial statement comparability is decreasing in the proprietary costs of financial reporting. Our results are robust to the use of alternative measures of comparability and alternative measures of proprietary costs of financial reporting. Additionally, theory suggests that financial reports will contain stronger signals of managers' private information when information asymmetry is high. We show that the negative relation between the proprietary costs of financial reporting and financial statement comparability is stronger for firms with poorer information environments. Together, our findings suggest that through the discretion afforded in GAAP, managers of firms with high levels of proprietary information report in a way that reduces the comparability of their financial statements, particularly when information asymmetry is high.

Keywords: Proprietary Costs, Competition, Comparability, Financial Reporting, Public Disclosure

JEL Classification: M41, M48

Suggested Citation

Seavey, Scott and Imhof, Michael and Watanabe, Olena V., Competition, Proprietary Costs of Financial Reporting and Financial Statement Comparability (May 2, 2018). Journal of Accounting, Auditing and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3225381 or http://dx.doi.org/10.2139/ssrn.3225381

Scott Seavey

Florida Atlantic University - School of Accounting ( email )

University Tower
220 SE 2 Avenue
Boca Raton, FL 33431
United States

Michael Imhof

Wichita State University - Barton School of Accountancy ( email )

United States

Olena V. Watanabe (Contact Author)

Iowa State University - Debbie and Jerry Ivy College of Business ( email )

613 Wallace Road
Ames, IA 50011-2063
United States

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