Do Firms Mimic Their Neighbors’ Accounting?: Industry Peer Headquarters Co-Location and Financial Statement Comparability

54 Pages Posted: 15 Jan 2019 Last revised: 5 Jul 2019

See all articles by Gus De Franco

Gus De Franco

Tulane University - A.B. Freeman School of Business

Yu Hou

Queen's University - Smith School of Business

Mark (Shuai) Ma

University of Pittsburgh - Accounting Group

Date Written: July 3, 2019

Abstract

Motivated by institutional theory, we investigate and find results consistent with firms imitating the accounting of peers headquartered in the same location. Using a large sample of observations from 1993 to 2017, we find both statistically and economically significant evidence that firms have higher financial statement comparability with industry peers located in the same MSA than with industry peers not located in the same MSA. The effect is robust to using a difference-in-differences test based on a sample of firms that relocated their headquarters. Furthermore, we explore several cross-sectional analyses based on institutional theory. We find that financial statement comparability between an industry leader and an industry follower is greater than between two followers or between two industry leaders. Importantly, the higher comparability between followers and leaders exists regardless of whether the leaders have high or low accounting quality. In addition, the effect of headquarters co-location on comparability is more pronounced between firms with stronger networks and those operating in industries with greater uncertainty. Overall, our study contributes to a better understanding of the determinants of financial statement comparability.

Keywords: Financial Statement Comparability, Institutional Theory, Firm Location, Industry Clustering

JEL Classification: M40, R30

Suggested Citation

De Franco, Gus and Hou, Yu and Ma, Mark (Shuai), Do Firms Mimic Their Neighbors’ Accounting?: Industry Peer Headquarters Co-Location and Financial Statement Comparability (July 3, 2019). Available at SSRN: https://ssrn.com/abstract=3310219 or http://dx.doi.org/10.2139/ssrn.3310219

Gus De Franco

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

Yu Hou (Contact Author)

Queen's University - Smith School of Business ( email )

Smith School of Business - Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

Mark (Shuai) Ma

University of Pittsburgh - Accounting Group ( email )

United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
174
Abstract Views
1,336
rank
188,188
PlumX Metrics