Do Industry-Specific Standards Matter for Capital Allocation Decisions?

86 Pages Posted: 20 Dec 2023 Last revised: 16 Feb 2024

See all articles by Peter Fiechter

Peter Fiechter

University of Neuchatel - Institute of Financial Analysis

Wayne R. Landsman

University of North Carolina Kenan-Flagler Business School

Ken V. Peasnell

Lancaster University - Department of Accounting and Finance

Annelies Renders

BI Norwegian School of Business

Date Written: October 20, 2023

Abstract

This study examines whether the implementation of industry-specific accounting standards helps capital market participants in making decisions about providing capital to firms. We predict and find an, on average, increase in firms’ capital growth in years following implementation of the relevant industry standard. The increase in capital growth arises primarily from equity issuances and is attributable to the implementation of the standards rather than industry-specific trends or economic shocks. We explore heterogeneity in industry standards and find more pronounced effects for (i) industry standards that reveal new information, provide explicit guidance, or increase accounting uniformity, and (ii) small firms, firms with greater information asymmetry, and firms with greater capital constraints before implementation of the standards. We also find evidence consistent with two channels explaining the documented increase in capital flows: reduction of information asymmetry and increase in financial statement comparability.

Keywords: Capital flows, Industry-specific standards, Accounting standards, Comparability, Transparency, Accounting uniformity, Stacked regression

JEL Classification: E22, G21, G28, G32, K23, M41, M48

Suggested Citation

Fiechter, Peter and Landsman, Wayne R. and Peasnell, Kenneth V. and Renders, Annelies, Do Industry-Specific Standards Matter for Capital Allocation Decisions? (October 20, 2023). Journal of Accounting & Economics (JAE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=4670503

Peter Fiechter (Contact Author)

University of Neuchatel - Institute of Financial Analysis ( email )

Rue A.-L. Breguet 2
Neuchatel, CH-2000
Switzerland

Wayne R. Landsman

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-3221 (Phone)
919-962-4727 (Fax)

Kenneth V. Peasnell

Lancaster University - Department of Accounting and Finance ( email )

The Management School
Lancaster LA1 4YX
United Kingdom
+44 1524 593631 (Phone)
+44 1524 847321 (Fax)

Annelies Renders

BI Norwegian School of Business ( email )

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