The Benefits of Financial Statement Comparability

Authors

  • GUS DE FRANCO,

    1. University of Toronto
    Search for more papers by this author
  • S.P. KOTHARI,

    1. MIT Sloan School of Management. We appreciate the helpful comments of Stan Baiman, Rich Frankel, Wayne Guay, Ole-Kristian Hope, Thomas Lys, Jeffrey Ng, Shiva Rajgopal, Scott Richardson, Shiva Shivramkrishnan, Doug Skinner (the editor), Shyam Sunder, Yibin Zhou, an anonymous referee, and workshop participants at Barclays Global Investors, UC Berkeley, the University of Chicago, Columbia University, the University of Florida, Harvard University, the University of Houston, the University of Iowa, MIT, Northwestern University, the University of Pennsylvania, Wharton, the University of Rochester, the University of Waterloo, the 2008 London Business School Symposium, the 2009 AAA Annual Meeting, the 2009 Duke-UNC fall camp, and the 2009 University of Toronto Conference. We gratefully acknowledge the financial support of MIT Sloan and the Rotman School, University of Toronto. Part of the work on this article was completed while Gus De Franco was a Visiting Assistant Professor at the Sloan School of Management, MIT.
    Search for more papers by this author
  • RODRIGO S. VERDI

    1. MIT Sloan School of Management. We appreciate the helpful comments of Stan Baiman, Rich Frankel, Wayne Guay, Ole-Kristian Hope, Thomas Lys, Jeffrey Ng, Shiva Rajgopal, Scott Richardson, Shiva Shivramkrishnan, Doug Skinner (the editor), Shyam Sunder, Yibin Zhou, an anonymous referee, and workshop participants at Barclays Global Investors, UC Berkeley, the University of Chicago, Columbia University, the University of Florida, Harvard University, the University of Houston, the University of Iowa, MIT, Northwestern University, the University of Pennsylvania, Wharton, the University of Rochester, the University of Waterloo, the 2008 London Business School Symposium, the 2009 AAA Annual Meeting, the 2009 Duke-UNC fall camp, and the 2009 University of Toronto Conference. We gratefully acknowledge the financial support of MIT Sloan and the Rotman School, University of Toronto. Part of the work on this article was completed while Gus De Franco was a Visiting Assistant Professor at the Sloan School of Management, MIT.
    Search for more papers by this author

ABSTRACT

Investors, regulators, academics, and researchers all emphasize the importance of financial statement comparability. However, an empirical construct of comparability is typically not specified. In addition, little evidence exists on the benefits of comparability to users. This study attempts to fill these gaps by developing a measure of financial statement comparability. Empirically, this measure is positively related to analyst following and forecast accuracy, and negatively related to analysts’ dispersion in earnings forecasts. These results suggest that financial statement comparability lowers the cost of acquiring information, and increases the overall quantity and quality of information available to analysts about the firm.

Ancillary