How does managerial entrenchment relate to Financial statement comparability?

PurposeThis study aims to concern about the relationship between management managerial attributes (management entrenchment, narcissism and overconfidence of the chief executive officer, board effort and real and accrual earnings management) and comparability of financial statements listed firms on the Tehran Stock Exchange. In other words, this paper aims to answer the question that “whether managerial attributes contribute significantly to the comparability of financial statements or not”.Design/methodology/approachThe multivariate regression model is used for hypothesis testing. The hypotheses were examined using a sample of 768 listed observations on the Tehran Stock Exchange during 2012–2017 and by using from the multivariate regression pattern based on panel data techniques and the random-effects model.FindingsThe obtained results show a significant and negative relationship between management entrenchment, real and accrual earnings management, comparability and the relationship between management narcissism, overconfidence and board effort and comparability of financial statements is positive and significant.Originality/valueAs the present study is the pioneer study on such topics in the emerging markets, it provides valuable information concerning the intrinsic and acquired features of the management for users, analysts and legal institutions with a considerable impact on the comparability of financial statements. Moreover, this study’s results contribute significantly to the development of science and knowledge in this field and fill the gap in the literature.

The comparability of financial statements is an important research topic in accounting literature. The introduction of the International Financial Reporting Standards (IFRS) in Europe has not eliminated the need for research concerning this topic, on the contrary. Several studies already determined the problem areas within the IFRSs and the factors that influence the comparability of financial statements. There is also extensive literature concerning the definition of comparable financial statements. This study contributes by determining how important these factors and problem areas are according to the auditors, analysts and other users of European IFRS financial statements and what their view is on the comparability of financial statements. Our survey of 426 individuals shows that, when forced to choose, most of them (67%) interpret comparability as uniformity, that is all companies using the same accounting methods. Flexibility, that is all companies can apply an accounting method that is adapted to their unique circumstances, is less preferred. Comparability of financial statements over time and of companies operating within the same industry are considered to be the most important forms of comparability. Accounting methods used, judgements made by preparers and interpretation differences of the applied standards are viewed as the most influential factors for the comparability of financial statements. Only 41% of the respondents believe that the IFRS financial statements are comparable. We defined 13 areas that are viewed as problematic by at least half of the respondents.

Objective: Comparability is a basic characteristic of financial statements that enables users to identify similarities in and differences between two sets of economic phenomena. Given that comparability is different from other qualitative characteristics of financial statements, doubt remains whether the existing evidence between corporate social responsibility and financial reporting quality continues to persist in the context of financial statements comparability. Positive corporate social responsibility performance reflects managers' ethics and integrity from the stakeholder theory perspective. On this basis, firms with positive corporate social responsibility performance have high compliance incentives to adhere to accounting standards and tend to provide comparable financial statements. The main aim of this study is to determine the relationship between corporate social responsibility performance and financial statements comparability, with an emphasis on the role of institutional ownership among Tehran Stock Exchange (TSE) listed companies using a statistical sample of 185 firms for the period of 2011-2020.Method: In this study, the comparability of financial statements is measured based on a Babaei et al (2021) empirical methodology based on relative valuation theory and corporate social responsibility performance is also measured from the model of El Ghoul et al. (2011) with the approach of Wang et al. (2020). In this study, multiple regression and Kramer Z test have been used to test the research hypotheses. Results: The results of this study show that the financial statements comparability significantly increases by enhancing positive corporate social responsibility performance, and also this positive relation is more intense for high institutional ownership firms. The findings also show a negative relationship between inferior adverse social responsibility performance and financial statements comparability, and also this negative relation is more intense for high institutional ownership firms. Also, the results of the research have been confirmed by using the De Franco et al (2011) measurement model of the financial statements comparability in the robustness tests of the findings.Conclusion: This study adds to the accounting literature by identifying the determinants of financial statements comparability. In summary, our findings are consistent with the notion that firms with positive corporate social responsibility performance (adverse corporate social responsibility performance) tend to have high (minimal) compliance incentives to adhere to accounting standards and are less (often) involved in managerial opportunistic activities, thereby resulting in high (low) financial statements comparability. Also, institutional owners, as one of the most important mechanisms of corporate governance, strengthens the relationship between corporate social responsibility and financial statements comparability. Positive corporate social responsibility performance can also establish or maintain a positive reputation for firms and prevent them from engaging in reputation-damaging activities.

본 연구의 목적은 기업의 원가에 대한 비대칭성이 재무제표 비교가능성에 미치는 영향을 살펴 보는 것에 있다. 선행연구(Anderson et al. 2003; 안태식 등 2004; 구정호 등 2009)에 따르면 원가의 비대칭성은 기업 내적요인에 의하여 나타난 기업특성이라고 한다. 예를 들어, 당기에 순이익을 높게 보고하기 위해 원가를 탄력적으로 보고하거나, 향후 이익의 낙관성을 예상한다면 기정원가를 유지하는 전략을 택하기도 한다. 따라서 개별 기업 내적인 고유의 특성을 반영한 비대칭적인 원가 회계처리를 한다면 재무제표 비교가능성은 낮아질 것으로 예상하였다. 이와는 달리 중립적인 원가 회계처리인 경우에 재무제표 비교가능성은 높아질 것이다. 따라서 이러한 원가에 대한 기업의 전략적 선택이 재무제표 비교가능성에 미치는 영향을 살펴보고자 한다. 2005년에서 2015년 기간 유가증권시장과 코스닥상장 18,418개의 분기별 표본을 대상으로 원가의 비대칭성과 재무제표 비교가능성의 관계를 회귀분석을 통하여 살펴보았다. 관심변수로는 Weiss(2010)의 모형을 기초로 한 원가비대칭성을 종속변수인 재무제표 비교가능성은 De Franco et al. (2011) 모형을 사용하였다. 분석결과 기업이 원가를 비대칭적으로 보고하는 경우 재무제표 비교가능성은 낮아지는 나타났 다. 또한 기업의 외국인주주지분율이 높은 경우 원가의 비대칭성과 재무제표 비교가능성의 음(-) 의 관계는 완화되는 것으로 나타났다. 해당 실증결과는 기업이 원가를 재무제표에 보고함에 있어서 중립적으로 선택하는 것이 재무제표 비교가능성을 높이는 것을 의미한다. 본 연구는 원가의 비대칭성이 재무제표 비교가능성 어떠한 영향을 미치고 있는 가를 실증적으로 살펴보고 있다. 해당 분석을 통해 자본시장 참여자에게 자본시장의 특성에 대한 이해룰 높이고 기업공시 및 기업가치평가와 관련해서 학문적 시사점을 제공한다.The purpose of this paper is to examine the effect of cost behavior on finance. Cost behaviors are affected by the incentives of firms. For example, when firm have an incentive to increase net income, they tend to manage cost flexibly. It has a direct effect on financial statement how to manage cost. Prior research show that cost stickiness behavior increase information asymmetry, resulting in harming the accuracy of analysts. However it is an empirical question how cost behavior affects comparability of financial statement, which is based on the concept that two firms have comparable accounting systems if, for a given set of economic events, they produce similar financial statements(De franco et al. 2011). Using the firm-quarter 18,418 data from 2005 to 2015 listed in KSE and KOSDAQ, we analyzed the relationship between asymmetric cost behavior and financial statement comparability by using the regression mode. Also we studied whether there is the incremental effect of foreign investor on the relation between asymmetric cost behavior and financial statement comparability First, there is a significant negative relation between asymmetric cost behavior and financial statement comparability. Also the negative relation between cost behavior and financial statement comparability is weakened for firms with higher proportion of foreign share holders. These empirical results imply that financial statement comparabilities firms are affected by the intent to manage net income and corporate governance. This study contributes to the literature by improving our understanding the effects of cost stickiness in the capital market. Also it provides the way to access accounting information on financial statement for firm valuation.

PurposeThis study aims to investigate the impact of managerial narcissism and overconfidence on financial statements’ comparability. In other words, this paper seeks to answer the question of whether the personality characteristics of managers may affect the level of financial statements’ quality of commercial entities or not.Design/methodology/approachThe research hypotheses are tested using a sample of 896 observations taken from the Tehran Stock Exchange and 245 observations from the Iraqi Stock Exchange during 2012 and 2018 using the multiple regression model based on the combined data technique.FindingsThe findings show that managerial narcissism is positively and significantly associated with Iran’s financial statement comparability. In contrast, Iraqi data articulate a negative association between these two variables. This paper finds that Chief Executive Officer overconfidence and financial statements’ comparability are negatively related in both countries. Following the market variation, the different findings suggest that institutional settings such as the general managerial style, adopting international accounting standards (now IFRS) leading to the extent of auditing market globally in Iraq and suffering from international sanctions in Iran, the governing business environment may play an allocative role in preparing financial statements.Originality/valueThe present research is the first research conducted in two emerging markets (Iran and Iraq) examining the relationship between managers’ narcissism and overconfidence and financial statements’ comparability. Therefore, the present research in this area can significantly contribute to the development of science and knowledge.

This study examines whether acquirers make better acquisition decisions when target firms’ financial statements exhibit greater comparability with industry peer firms. We predict and find that acquirers make more profitable acquisition decisions when target firms’ financial statements are more comparable—as evidenced by higher merger announcement returns, higher acquisition synergies, and better future operating performance. We also find that post‐acquisition goodwill impairments and post‐acquisition divestitures are less likely when target firms’ financial statements are more comparable. Finally, we find that acquirers benefit most from comparability when acquirers’ ex ante information asymmetry is higher, acquirers operate in volatile operating environments, and management knows relatively less about the target. In total, our evidence suggests targets’ financial statement comparability helps acquirers make better acquisition‐investment decisions and fosters more efficient capital allocation.

This study examines whether acquirers make better acquisition decisions when target firms’ financial statements exhibit greater comparability with industry peer firms. We predict and find that acquirers make more profitable acquisition decisions when target firms’ financial statements are more comparable — as evidenced by higher merger announcement returns, higher acquisition synergies, and better future operating performance. We also find that post-acquisition goodwill impairments and post-acquisition divestitures are less likely when target firms’ financial statements are more comparable. Finally, we find that acquirers benefit most from comparability when acquirers’ ex-ante information asymmetry is higher, acquirers operate in volatile operating environments, and management knows relatively less about the target. In total, our evidence suggests targets’ financial statement comparability helps acquirers make better acquisition-investment decisions and fosters more efficient capital allocation.

We propose a new input-based measure of financial statement comparability (FSC) that captures the degree of overlap in the financial statement line items reported by industry peers. FSC quantifies the extent to which peer firms have similar economic events and accounting transactions as reflected in their financial statements. We validate FSC by showing its use in benchmarking exercises by corporate boards and financial analysts. We then exploit a unique feature of our measure, namely that it allows us to construct finer FSC measures such as income statement versus balance sheet comparability. We show that income statement comparability is particularly useful when forecasting earnings, whereas balance sheet comparability is more important when forecasting balance sheet items such as debt and when assessing credit risk. Our results show that different components of FSC are beneficial in different contexts and for different financial statement users.

PurposeThe purpose of this paper is to examine the indirect effect of the International Financial Reporting Standard (IFRS) adoption in increasing the foreign investors’ ownership through the improvement of comparability of financial statements.Design/methodology/approachThis study employs listed companies in 18 countries across Europe, Asia, Africa, and Australia with an observation period from 2003 to 2012. Unlike previous studies, this study uses a continuous variable to measure the level of IFRS adoption which is measured at the country level. This study includes countries that do not fully adopt the IFRS, partially adopt, make some delays in adoption or some modifications to IFRS.FindingsThe results show that the level of IFRS adoption has a positive effect on the comparability of financial statements. The level of IFRS adoption indirectly increases the foreign investors’ ownership through the comparability of financial statements. These results are consistent with proponents for IFRS adoption which argue that the adoption improves the comparability of financial statements that in turn attracts greater cross-border investment.Research limitations/implicationsThe findings of this study need to be interpreted with caution due to limitations. Although this research provides a detail measurement on the IFRS adoption, this study only looks at three general items of difference in adopting the IFRS. “Differences in text” used in this research has not quantified detail differences for each adopted standards. Therefore, future research can use a more in-depth measurement of the IFRS adoption level that considers differences or exceptions of accounting treatment.Practical implicationsThe results suggest that the standards setting bodies’ (IASB) strategy on promoting the IFRS and objectives to develop a standard that leads to increase the financial statement comparability have been achieved. This research shows that the IFRS adoption plays a role in ensuring the financial statement quality in terms of its comparability. It implies that the standard-setting bodies in every country, as one of the responsible institutions regulating the business environment, can be entrusted with a greater role in order to ensure better financial information quality.Originality/valueThis study introduces novel measurement that is more detailed in measuring the IFRS adoption level instead of applying the discrete variable approach (“adopt” and “not adopt”) performed by previous studies (DeFond et al., 2011; Tan et al., 2011; Lee and Fargher, 2010). This study does not only cover some EU countries but also covers some countries in Asia, Africa, and Australia, so it can be better at capturing the variation of the IFRS adoption outside the EU. This broader coverage will show the consistency of the benefits of IFRS adoption. This study is most closely related to that of DeFond et al. (2011). This research extends DeFond’s study with some important differences as follows: it uses output-based and firm-specific measurement of the comparability from DeFranco et al. (2011), which is deemed to be more appropriate because it represents the qualitative characteristics of financial statements from a user’s perspective, i.e., investors, who evaluate historical performance and predict future performance in their investment decisions; it uses a broader scope of institutional investors; and it covers IFRS adoption in countries outside the EU for a longer observation period.

Since 2005, listed EU companies apply IFRS to prepare their consolidated financial statements. Users might get the impression that these financial statements are comparable now. However, differences in application of IFRS still exist. These differences can have a negative impact on the comparability of the financial statements. Therefore, the implementation of IFRS has not eliminated the need for research concerning the comparability of financial statements. The purpose of this article is to assist researchers in choosing the most appropriate method to measure this comparability. First the article discusses the concept of comparability. Second, important properties of measurement methods are discussed. Next, the H, C, I, V and T index and three statistical models are analysed. Finally, the article gives an illustration of choosing a method to measure the comparability of the consolidated financial statements of the EU listed companies.

Since 2005, listed EU companies apply IFRS to prepare their consolidated financial statements. Users might get the impression that these financial statements are comparable now. However, differences in application of IFRS still exist. These differences can have a negative impact on the comparability of the financial statements. Therefore, the implementation of IFRS has not eliminated the need for research concerning the comparability of financial statements. The purpose of this article is to assist researchers in choosing the most appropriate method to measure this comparability. First the article discusses the concept of comparability. Second, important properties of measurement methods are discussed. Next, the H, C, I, V and T index and three statistical models are analysed. Finally, the article gives an illustration of choosing a method to measure the comparability of the consolidated financial statements of the EU listed companies.

Purpose This paper aims to explore the moderating role of state ownership variables on the relationship between market concentration (MC) and financial statement comparability (FSC) in Vietnam. Design/methodology/approach This study uses data from the financial statements of 475 nonfinancial listed companies for the period from 2010 to 2019. This study uses both the system generalized method of moments and fuzzy-set qualitative comparative analysis (fsQCA) to consider the correlation and causal–effect relationships of the variables in the model. Findings The results show that MC has a positive relationship with FSC, and MC tends to exert a stronger impact on FSC for firms with higher state ownership. In addition, this study suggests that some combinations help improve FSC. This study has important implications for investors, managers and especially state-owned organizations when market power becomes fierce. Originality/value This study contributes to the literature on the comparability of financial statements in the context of developing countries that have not fully adopted International Financial Reporting Standards. Furthermore, this study applies the fsQCA method to complement the linear regression method.

This research investigates the relationship between product market competition, Chief Executive Officers’ (CEOs) overconfidence and financial statement comparability. It presents evidence supporting the argument that product market competition diminishes financial statement comparability consistent with the agency problem. Furthermore, it suggests that this negative relationship intensifies when CEOs display overconfidence. A tendency to underestimate risks and have an exaggerated view of one's abilities are indicators of overconfidence leading to the comparability of financial statements. This study analyzes 53,233 data observations spanning from 1992 to 2022 using firm and year-fixed effects panel regressions. The empirical findings confirm a negative relationship between product market competition and financial statement comparability. Moreover, this negative relationship is more pronounced under the leadership of overconfident CEOs. These findings remain robust even after we address other potential measurement concerns related to product market competition. Ultimately, this study highlights the necessity for regulatory institutions to closely monitor firms operating in competitive markets particularly those led by overconfident managers. Additionally, policymakers and regulatory bodies should exercise increased scrutiny when evaluating the financial reporting of such firms to enhance investor confidence. Future research could investigate alternative methods for deriving overconfidence measures from publicly available databases and examine how regulatory and institutional differences in various countries impact the quality of financial reporting including financial statement comparability.

We investigate the effect of financial statement comparability on banks’ earnings smoothing behavior through loan-loss provisioning. Financial statement comparability makes information about peers accessible to outside investors and, thereby, improves transparency and the information environment. We, therefore, predict a negative association between financial statement comparability and earnings smoothing for opportunistic reasons. Based on a sample of 628 US banks (4,683 bank-years observations) for the period 1999-2013, we show that financial statement comparability constrains income smoothing through loan-loss provisioning. We further reveal that this constraining effect is more pronounced for larger banks and during the global financial crisis (GFC) period. These results are robust to alternative specifications of comparability and earning management, bank (firm) fixed effect regression, and also dealing with endogeneity issues. We contribute to the literature on the benefits of producing comparable financial statements, as well as to the literature on the determinants of earnings smoothing by banks. Our results are also relevant for standard setters who stress the importance of financial statement comparability for nurturing investor confidence.

Purpose – The introduction of the IFRS in the European Union, and many other countries, has not eliminated the need for research concerning the comparability of financial statements. The IFRS still offers many options. Extensive theoretical literature exists concerning the definition of comparable financial statements and the factors that influence this comparability. This paper aims to investigate this issue.Design/methodology/approach – The paper uses a survey of 426 individuals who use European IFRS financial statements.Findings – This study shows that most of the respondents (67 per cent) interpret comparability as uniformity, that is, that all companies using the same accounting methods. Comparability of financial statements over time and of companies operating within the same industry are considered to be the most important types of comparability. Both types are jeopardised because of continuous changes in IFRS and the lack of industry specific guidance. Only 41 per cent of the respondents believe t...