Economic policy uncertainty and financial statement comparability

Dhole, Sandip; Liu, Li; Lobo, Gerald J.; Mishra, Sagarika

doi:10.1016/j.jaccpubpol.2020.106800

Cited by 36 publications

(34 citation statements)

References 49 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…3. Recent EPU papers using Baker et al (2016)'s economic policy uncertainty measure which suggest that EPU and voluntary disclosure (Nagar et al 2019), tax avoidance (Nguyen and Nguyen 2020), cash holdings (Li 2019), financial statement comparability (Dhole et al, 2020), earnings management (Yung and Root 2019). So from this study, EPU measure might be the validity measure to capture firms' economic policy uncertainty and its economic consequences of the firm.…”

Section: Discussionmentioning

confidence: 90%

Economic policy uncertainty and audit effort: evidence from audit hours

Yun

Chun

2021

MAJ

View full text Add to dashboard Cite

Purpose This paper aims to examine the association between economic policy uncertainty (EPU) and audit effort by focusing on audit hours. This paper also explores whether significant political uncertainty might amplify the positive association between EPU and audit effort by focusing on Korea. Design/methodology/approach This study uses 21,543 Korean firm-year observations from 2005 to 2018 in an audit hour determinant model, as well as EPU following Baker et al. (2016) and audit hour to proxy audit effort. Findings EPU is positively associated with audit hours, indicating that auditors work more audit hours in response to firms’ high EPU resulting from higher earnings manipulation risk. Further, whether this positive association between EPU and audit effort might be altered by significant political uncertainty is investigated using a presidential election dummy. The empirical results show that auditors work additional audit hours during fiscal years in which presidential elections occur, given high EPU. Originality/value To the best of the authors’ knowledge, this paper might be the first empirical attempt to use audit hour data with EPU to provide practical implications to academia or auditors.

show abstract

Section: Discussionmentioning

confidence: 90%

Economic policy uncertainty and audit effort: evidence from audit hours

Yun

Chun

2021

MAJ

View full text Add to dashboard Cite

show abstract

“…Following prior comparability literature (e.g., Dhole et al, 2021 ; Francis et al, 2014 ), we control for a vector of firm characteristics that have been shown to affect comparability. First, we add size ( Size : defined as the natural log of the firm’s total assets) and market to book ratio ( MB : market value of equity deflated by the book value of equity) to control for the firm's unobservable attributes.…”

Section: Methodsmentioning

confidence: 99%

“…First, we add size ( Size : defined as the natural log of the firm’s total assets) and market to book ratio ( MB : market value of equity deflated by the book value of equity) to control for the firm's unobservable attributes. Second, following Dhole et al ( 2021 ) and Francis et al ( 2014 ), we control for operating cash flow ( OCF : cash flow from operation scaled by total assets), sales growth ( Growth : measured as current year sales minus previous year sales divided by sales in the previous year), and leverage ( Lev : firm’s total liability divided by total assets). We use these variables to view that both firm’s business environment and manager’s inclination to change financial reports could affect comparability.…”

Section: Methodsmentioning

confidence: 99%

“…Comparability curtails information asymmetry leading to increased transparency which results in higher innovation efficiency (Chircop et al, 2020 ), efficient allocation of resources (Kim et al, 2020 ), higher stock price informativeness (Choi et al, 2019 ), lower tax avoidance (Majeed & Yan, 2019 ), superior acquisitions (Chen et al, 2018 ), greater relevance of accounting information (Kim et al, 2018 ), decrease the cost of capital (Imhof et al, 2017 ), minimize credit risk (Kim et al, 2013 ), lower stock price crash risk (Kim et al, 2016 ), and forecast accuracy (De Franco et al, 2011 ). However, there are various benefits linked with comparability in the literature (e.g., Chen et al, 2018 ; Chircop et al, 2020 ; Choi et al, 2019 ; Kim et al, 2018 , 2020 ; Zhang et al, 2020 ), only a handful of studies focused on the determinants of comparability (Cao et al, 2016 ; Dhole et al, 2021 ; Francis et al, 2014 ; Imhof et al, 2018 ; Lee et al, 2016 ; Majeed et al, 2018 ). We bridge this gap and provide new insights on the determinants of comparability.…”

Section: Introductionmentioning

confidence: 99%

“…First, this study demonstrates strong empirical evidence on board diversity as a determinant of a firm’s comparability and contributes to the accounting literature. Previous studies documented the role of economic policy uncertainty (Dhole et al, 2021 ), corporate social responsibility (Wang et al, 2020 ), competitive environment (Imhof et al, 2018 ), audit committee (Endrawes et al, 2018 ), related party transactions (Lee et al, 2016 ) auditor style (Francis et al, 2014 ) and financial reporting standards (Barth et al, 2012 ). However, the preceding literature ignored the role of corporate boards in shaping financial statement comparability.…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Board diversity and financial statement comparability: evidence from China

et al. 2022

View full text Add to dashboard Cite

We investigate the relationship between board diversity (relation-oriented diversity, task-oriented diversity, and overall board diversity) and financial statement comparability. We find that diverse boards are positively associated with financial statement comparability, suggesting that board diversity improves governance mechanisms by alleviating agency conflicts, leading to higher comparability than homogenous boards. We also find that institutional ownership positively affects the association between board diversity and financial statement comparability. Furthermore, the positive effect of diversity, institutional ownership, and comparability are more pronounced in non-state-owned firms and non-crisis periods. Our findings remain consistent with a battery of econometric techniques and measures of comparability. This study provides new insights regarding the role of boardroom diversity in shaping the qualitative aspect of financial reporting, i.e., financial statement comparability. Supplementary Information The online version contains supplementary material available at 10.1007/s40821-022-00214-3.

show abstract

The impact of economic policy uncertainty on earnings value relevance

Ma,

Sun

2024

Int. J Fin Econ

View full text Add to dashboard Cite

Earnings value relevance, defined by the predictive and explanatory power of corporate earnings information for market value, reflects accounting earnings decision utility and the capital market's information efficiency. Economic policy uncertainty (EPU) reduces information quality, impairs the information environment, and disrupts interpretation of information, diminishing earnings value relevance. Using a dataset comprising Chinese A‐share listed companies from 2006 to 2019, we empirically examine the impact of EPU on earnings value relevance. Our finding indicates that EPU reduces earnings value relevance, and the effect is more pronounced in firms with lower governance effectiveness and higher firm complexity. Channel analysis demonstrates that decreasing information quality, undermining the information environment, and impeding investor decision‐making are the main three mechanisms. In light of these findings, the government should strive to enhance stability in economic policies and improve information efficiency, fostering a positive interaction between firms and the capital market.

show abstract

Economic policy uncertainty and financial statement comparability

Cited by 36 publications

References 49 publications

Economic policy uncertainty and audit effort: evidence from audit hours

Economic policy uncertainty and audit effort: evidence from audit hours

Board diversity and financial statement comparability: evidence from China

The impact of economic policy uncertainty on earnings value relevance

Contact Info

Product

Resources

About