Accounting comparability and relative performance evaluation by capital markets

• 成果类型: Article
• 署名作者: Wu, Sang; Xue, Wenjie
• 署名单位: Columbia University; National University of Singapore
• 刊物名称: JOURNAL OF ACCOUNTING & ECONOMICS
• ISSN/ISSBN: 0165-4101
• DOI: 10.1016/j.jacceco.2022.101535
• 发表日期: 2023
• 关键词: positive theory; INFORMATION; disclosure; cost

摘要

This paper examines how accounting comparability affects the monitoring role and the risk allocation role of capital markets. We develop the statistical and informational properties of accounting reports under varying degrees of comparability. A perfectly comparable accounting information system enables investors to perfectly infer the dif-ference between any two firms' future cash flows although investors remain uncertain about either firm's cash flow. Comparability alleviates entrepreneurs' moral hazard problem by strengthening the price response to the relative accounting performance, but can induce excessive price risk as well as residual systematic cash flow risk. Unlike the investors (users) who earn their surplus by bearing the residual systematic risk, the en-trepreneurs (preparers) do not find perfect comparability desirable. Hence, a standard setter would mandate higher comparability than preferred by preparers, but not perfect comparability.(c) 2022 Elsevier B.V. All rights reserved.