Financial statement comparability and managers’ use of corporate resources
Louise Yi Lu and
Accounting and Finance, 2021, vol. 61, issue S1, 1697-1742
We examine the impact of financial statement comparability on managers’ use of corporate resources. Using the comparability measures of De Franco, Kothari, and Verdi as proxies for financial statement comparability, we find that, as comparability increases, corporate cash holdings are worth more to outside shareholders, capital expenditure contributes more to shareholder value, and corporate acquisitions made by the firm have a more favourable impact on shareholder value. We also find that higher comparability leads to both lower under‐ and overinvestment. Our results suggest that comparability facilitates investor monitoring of managers’ use of corporate resources, which enhances shareholder value.
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