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Financial Statement Comparability and Idiosyncratic Return Volatility
Author(s) -
Habib Ahsan,
Hasan Mostafa Monzur,
AlHadi Ahmed
Publication year - 2020
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/irfi.12227
Subject(s) - comparability , financial statement , accounting , volatility (finance) , cash flow , business , financial statement analysis , cash flow statement , statement of changes in financial position , economics , actuarial science , finance , financial ratio , accounting management , accounting information system , audit , mathematics , combinatorics
This study examines the association between financial statement comparability and idiosyncratic return volatility (IRV). A greater degree of comparability lowers information acquisition costs, reduces the uncertainties associated with performance evaluation, and increases the overall quantity and quality of information available to corporate outsiders, which, in turn, helps investors to understand and evaluate the cash flow and performance of firms more accurately. Therefore, we hypothesize a negative association between financial statement comparability and IRV. Using a large US sample from 1981 to 2013, we show that financial statement comparability is associated with lower level of IRV significantly. We also find this association to be more pronounced in a poor information environment. This study contributes to the emerging research that stresses the benefits of financial statement comparability.