Financial Statement Comparability and Managers’ Use of Corporate Resources
Accounting & Finance, Forthcoming
59 Pages Posted: 7 Apr 2020
Date Written: March 13, 2020
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: Suggested Citation