Accounting Comparability and the Value Relevance of Earnings and Book Value

Journal of Corporate Accounting & Finance, Forthcoming

39 Pages Posted: 8 Jul 2020 Last revised: 15 Jul 2020

See all articles by Bingyi Chen

Bingyi Chen

Suffolk University

Ahmet C. Kurt

Bentley University - Department of Accountancy; Bentley University - Department of Accountancy

Guannan Wang

Suffolk University

Date Written: June 15, 2020

Abstract

The value relevance of financial statements is of great significance to investors and standard setters. The present research examines whether accounting comparability among industry peers enhances the value relevance of earnings and book value. This is an important question because both the Financial Accounting Standards Board and the Securities Exchange Commission seek greater comparability in financial reporting. However, there is limited empirical evidence on how comparability affects the value relevance of accounting information in the U.S. Our results show that accounting comparability increases the value relevance of earnings, but not book value. That is, when firms exhibit greater accounting comparability vis-à-vis industry peers, investors attach higher value to reported earnings. In terms of economic significance, the value relevance of earnings is 25.2 percent higher when accounting comparability is higher by one standard deviation. However, the incremental benefits of accounting comparability are attenuated when financial reporting opacity is high or when there exists an internal control material weakness over financial reporting. In contrast, comparability benefits are enhanced when an industry specialist auditor is employed. Our results are robust to using different model specifications.

Keywords: Value Relevance, Accounting Comparability, Financial Reporting Opacity, Internal Controls, Specialist Auditors

JEL Classification: G14, M41

Suggested Citation

Chen, Bingyi and Kurt, Ahmet C. and Kurt, Ahmet C. and Wang, Guannan, Accounting Comparability and the Value Relevance of Earnings and Book Value (June 15, 2020). Journal of Corporate Accounting & Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3626658

Bingyi Chen

Suffolk University

Sawyer School of Management
Boston, MA 02108
United States

Ahmet C. Kurt

Bentley University - Department of Accountancy ( email )

175 Forest Street
Waltham, MA 02452
United States

Bentley University - Department of Accountancy ( email )

175 Forest Street
Waltham, MA 02452
United States

Guannan Wang (Contact Author)

Suffolk University ( email )

Sawyer School of Management
Boston, MA 02108
United States

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