Financial Statement Comparability and Managers’ Use of Corporate Resources

Accounting & Finance, Forthcoming

59 Pages Posted: 7 Apr 2020

See all articles by Jeong-Bon Kim

Jeong-Bon Kim

City University of Hong Kong

Leye Li

UNSW Sydney

Louise Yi Lu

Australian National University

Yangxin Yu

City University of Hong Kong

Date Written: March 13, 2020

Abstract

We examine the impact of financial statement comparability on managers’ use of corporate resources. Using the comparability measures of De Franco, Kothari, and Verdi (2011) as proxies for financial statement comparability, we find that, as comparability increases, corporate cash holdings are worth more to outside shareholders, capital expenditure contributes more to shareholder value, and corporate acquisitions made by the firm have a more favorable impact on shareholder value. We also find that higher comparability leads to both lower under- and overinvestment. Our results suggest that comparability facilitates investor monitoring of managers’ use of corporate resources, which enhances shareholder value.

Keywords: Financial statement comparability, Cash holdings, Capital expenditure, Acquisitions, Shareholder value

JEL Classification: D81, G31, M41

Suggested Citation

Kim, Jeong-Bon and Li, Leye and Lu, Louise Yi and Yu, Yangxin, Financial Statement Comparability and Managers’ Use of Corporate Resources (March 13, 2020). Accounting & Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3553715 or http://dx.doi.org/10.2139/ssrn.3553715

Jeong-Bon Kim

City University of Hong Kong ( email )

Department of Accountancy
83 Tat Chee Avenue
Kowloon Tong
Hong Kong
852-3442-7909 (Phone)

Leye Li

UNSW Sydney ( email )

UNSW Sydney Australia
Sydeney, NSW 2052
Australia

HOME PAGE: http://www.business.unsw.edu.au/our-people/leye-leonard-li

Louise Yi Lu (Contact Author)

Australian National University ( email )

Yangxin Yu

City University of Hong Kong ( email )

Hong Kong

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