Open AccessEarnings Comparability and Firm-Specific Stock Price Crash Risk
Author(s) -
Ruixue Du,
Shuo Li,
Ling Tuo,
Yu Zhang
Publication year - 2018
Publication title -
international journal of accounting and financial reporting
Language(s) - English
Resource type - Journals
ISSN - 2162-3082
DOI - 10.5296/ijafr.v8i3.13659
Subject(s) - comparability , earnings , business , incentive , litigation risk analysis , accounting , conservatism , stock (firearms) , earnings quality , audit , economics , econometrics , actuarial science , accrual , microeconomics , mathematics , combinatorics , politics , political science , law , mechanical engineering , engineering
This study examines the association between earnings comparability and firm-specific stock price crash risk. Using a large sample of 33,696 firm-year observations from the U.S. public firms, we find a positive association between comparability and future stock price crash risk. This finding is consistent with the notion that corporate managers do not have much incentive to release firm-specific information (especially bad news), as long as their firms’ financial statements are comparable to those of the industry peers. We further show that the positive association between earnings comparability and future crash risk is attenuated for firms with strong external monitoring (i.e., high analyst coverage, high institutional ownership, and high audit quality) and firms with low information asymmetry (i.e., low probability of informed trading). Our results are robust to (1) controlling for other important earnings attributes (e.g., conditional conservatism and income smoothing) that are associated with crash risk, (2) conducting change analyses, and (3) using alternative measures of earnings comparability. Our findings have an important implication that earnings comparability does not always result in favorable capital market outcomes.