۱٫ Introduction

۲٫ Literature review and hypothesis development

۳٫ Research design

۴٫ Empirical results

۵٫ Additional analyses

۶٫ Conclusion

Appendix A. Variable definitions

Appendix B. Controlling for other firm- and market-level determinants of trading volume

References

Abstract

This paper examines the role of financial statement comparability in shaping trading volume prior to earnings announcements. We find that the degree of delayed trading volume prior to earnings announcements is less pronounced for firms with more comparable financial statements. In addition, the effect of financial statement comparability on pre-announcement trading volume is stronger in more opaque information environments. Our findings are incrementally significant after controlling for a comprehensive set of within-firm earnings attributes and robust to various research design choices including alternative comparability models with differing peer group selection. Collectively, our results show that financial statement comparability serves an integral mechanism facilitating a firm’s pre-existing information environment. In sum, this paper constitutes the first, volume-based evidence which lends support to the usefulness of financial statement comparability in investors’ trading activity.

Introduction

In this paper, we investigate the role of financial statement comparability in mitigating delayed trading volume prior to earnings announcements (Chae, 2005). Both the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) embrace financial statement comparability as a key qualitative characteristic of accounting information which has the potential to increase the quantity of firm-level financial information and to improve the quality of a firm’s pre-existing information environment (FASB, 2010; IASB, 2010, 2018). Moreover, many popular accounting and finance textbooks explain the practical value of comparable firm analysis as a starting point of equity valuation (e.g., Healy & Palepu, 2013). Notwithstanding the conceptual and practical importance of financial statement comparability, only recently have researchers begun to examine various aspects of accounting comparability partly due to the empirical challenge in computing a firm-specific measure of financial statement comparability for a large cross-section of firms (De Franco, Kothari, & Verdi, 2011). Given the interests of standard setters, regulators, practitioners, and academics in the information environment attribute of accounting comparability (see Gross and Perotti (2017) and Schipper (2003) for reviews), it is important to empirically investigate the role of comparability in investors’ trading activity, which can shed new light on how comparability shapes the efficiency of capital-allocation decisions in financial markets (Chordia, Roll, & Subrahmanyam, 2001).