The usefulness of financial accounting information: evidence from the field

Stefano Cascino, Mark Clatworthy (mark.clatworthy@bristol.ac.uk), Beatriz Garcia Osma, Joachim Gassen and Shahed Imam

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We examine how investment professionals assess the usefulness of financial accounting information depending on their information acquisition objectives and preparers’ earnings management incentives. We conduct a survey experiment based on face-to-face interviews with investment professionals and document two main results. First, we find that, compared with investment professionals assigned a firm valuation objective, those assigned a managerial performance evaluation objective assess accounting information as significantly less useful. Second, we find no systematic evidence that preparers’ earnings management incentives negatively affect investment professionals’ assessments of accounting information usefulness. To elucidate this second finding, we conduct a large-scale follow-up online experiment. Our results continue to offer no support for the effect of earnings management incentives on investment professionals’ assessments of accounting information usefulness, irrespective of preparers’ corporate governance quality. Instead, we find that poor corporate governance, by itself, reduces the usefulness of accounting information to investment professionals.

Keywords: decision usefulness; financial reporting objectives; earnings management; corporate governance; investment professionals; relevance; representational faithfulness (search for similar items in EconPapers)
JEL-codes: G15 G18 G38 M41 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2021-11-01
New Economics Papers: this item is included in nep-acc, nep-cfn, nep-exp and nep-hrm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Published in Accounting Review, 1, November, 2021, 96(6), pp. 73 - 102. ISSN: 0001-4826

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