Financial Statement Comparability and Information Risk

Abstract

This study extends the prior research on comparability benefits and examines the relation between financial statement comparability and information risk. I expect that higher accounting comparability of financial statements enhances the utility of accounting data for investors by helping them to identify the similarities and differences between economic events and thus decrease the information risk of firms with higher accounting comparability. Consistent with my predictions, I find that firms with higher financial statement comparability have lower information risk and this effect is more pronounced for firms with high earnings volatility. The findings suggest that accounting comparability facilitates the users of financial statements to better understand firms’ accounting data and therefore increases the usefulness of financial statement information and helps investors make better judgement on firms’ performances and, as a result, make better investment decisions.