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Economic policy uncertainty and financial statement comparability
Authors:Sandip Dhole  Li Liu  Gerald J. Lobo  Sagarika Mishra
Affiliation:1. Monash Business School, Monash University, Australia;2. Deakin Business School, Deakin University, Australia;3. C.T. Bauer College of Business, University of Houston, United States;4. Deakin Business School, Deakin University, Australia;1. School of Business, University of Connecticut, 2100 Hillside Rd., Unit 1041A, Storrs, CT 06269, United States;2. College of Business, Colorado State University, 501 W. Laurel St., Fort Collins, CO 80523, United States;1. Department of Accounting, Box 8113, North Carolina State University, Raleigh, NC 27695-8113, United States;2. Department of Management, Ca’ Foscari University, Cannaregio 873, 30121 Venice, Italy;1. Texas Christian University, United States;2. University of California at Riverside, United States;3. City University of Hong Kong, Hong Kong;4. West Virginia University, United States;1. University of Bologna, Department of Management, Via Capo di Lucca 34, 40126 Bologna, Italy;2. University of Udine, Economics and Statistics Department, Via Palladio 8, 33100 Udine, Italy;1. Lehigh University, USA;2. Santa Clara University, USA;3. Korea Advanced Institute of Science and Technology (KAIST), South Korea;4. California State Polytechnic University, Pomona, USA
Abstract:
We examine the implications of economic policy uncertainty (EPU) for financial statement comparability. We posit that the increased difficulty of estimating future cash flows and the increased opportunity for earnings management with increased EPU reduce the quality of earnings and its comparability. Consistent with this reasoning, we find a negative relation between earnings comparability and lagged EPU. Further, the association between EPU and comparability is more negative for firms that have poorer accruals quality and higher earnings volatility. We do not find that accounting policy choice is systematically related to the association between EPU and comparability. These results suggest that cross-sectional differences in accounting estimates rather than accounting policies influence the relation between EPU and comparability.
Keywords:Economic policy uncertainty  Financial statement comparability  Accounting estimates  Accounting policy choice  E66  M41
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