Financial Statement Similarity

72 Pages Posted: 30 May 2019 Last revised: 7 Nov 2022

See all articles by Stephen V. Brown

Stephen V. Brown

University of Connecticut - Department of Accounting

Guang Ma

McGill University - Desautels Faculty of Management

Jenny Wu Tucker

University of Florida - Warrington College of Business

Date Written: August 22, 2022

Abstract

We propose financial statement similarity as a measure of financial reporting comparability. The firm-pair version of our measure reflects the degree to which two firms report similar relations within their financial statement items; this version can help managers and market participants identify peer firms. The firm-year version of our measure reflects the degree to which a firm reports relations within its financial statement items that are similar to the other members of its industry; this version can help market participants, regulators, and auditors screen firms for further attention. Our measure uses the presence and amounts of almost all financial items reported by a firm and can be constructed for both public and private firms. We validate our measure in four sets of analyses to establish concurrent validity and in two sets of analyses to establish predictive validity. In all these tests, we contrast our measure with the comparability measure of De Franco et al. (2011) as well as a multivariate measure that considers only the presence, not amounts, of financial statement items (Hoitash et al. 2018). Our measure outperforms the alternatives and can be a useful tool for users.

Keywords: comparability; similarity; financial reporting; peer firms; benchmark firms.

JEL Classification: M2, M4, and G3

Suggested Citation

Brown, Stephen V. and Ma, Guang and Tucker, Jenny Wu, Financial Statement Similarity (August 22, 2022). Available at SSRN: https://ssrn.com/abstract=3384394 or http://dx.doi.org/10.2139/ssrn.3384394

Stephen V. Brown

University of Connecticut - Department of Accounting ( email )

School of Business
Storrs, CT 06269-2041
United States

HOME PAGE: http://www.stephenvbrown.com/

Guang Ma

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St W
Montreal, Quebec h3A 1G5
514-398-5075 (Phone)

HOME PAGE: http://guangma.info

Jenny Wu Tucker (Contact Author)

University of Florida - Warrington College of Business ( email )

Gainesville, FL 32611
United States
352-273-0214 (Phone)
352-392-7962 (Fax)

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