Common Ownership and Financial Reporting Comparability
Posted: 30 May 2019
Date Written: December 18, 2018
In this paper, we examine the effect of common ownership (i.e., instances where investors simultaneously own significant stakes in multiple firms in the same industry) on financial reporting comparability. We find that when a firm shares at least one institutional blockholder with other firms in the same industry, its financial reporting becomes more comparable to that of its industry peers. We identify a key mechanism through which the convergence of the financial reporting takes place: the hiring of an industry specialist auditor. Using the mergers of financial institutions as plausibly exogenous variation in firms’ common ownership status, we corroborate the positive impact of common ownership on the comparability of financial reporting across firms. Our finding highlights the role of common ownership as a market force in facilitating the convergence of financial reporting in the United States.
Keywords: Common Ownership, Financial Reporting Comparability
JEL Classification: G10, M41
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