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Multidimensional financial statement comparability

Matthew M Bjornsen, University of Nebraska - Lincoln

Abstract

The purpose of this study is to develop the first multidimensional measure of financial statement comparability. This measure is based on the disaggregated financial accounting components of earnings, and is constructed by applying a finer-earnings component approach (per Lipe 1986) to a popular financial statement comparability framework (De Franco et al. 2011; Barth et al. 2012). This study solves a previous limitation of the academic literature, while simultaneously recognizing information disaggregation theory and practical application. The multidimensional financial statement comparability measure in this paper is contrasted with the one-dimensional (i.e., based solely on aggregate earnings) financial statement comparability measure used in prior studies. The multidimensional approach allows for the measurement of comparability between two firms across several dimensions and allows for contrast-based analyses across companies. This framework not only more-informatively captures economic effects as they affect one company, but also enhances the ability to contrast that company’s accounting system to that of other companies impacted by similar economic effects. Further, using a finer, multidimensional measure of financial statement comparability results in the ability to identify the underlying financial statement line items influencing the comparability of cross-company financial statements. This comparability measure is robust to a rigorous set of analyses, including tests of incremental informativeness, alternative specifications of comparability, and considerations regarding information environment. Overall, relationships among firms’ financial statements appear more complex than aggregate-earnings based measures of comparability may suggest. The metric developed in this study will be useful in future research based on its ability to capture and accommodate financial reporting within the comparability framework.^

Subject Area

Accounting|Business administration|Finance

Recommended Citation

Bjornsen, Matthew M, "Multidimensional financial statement comparability" (2016). ETD collection for University of Nebraska - Lincoln. AAI10102682.
http://digitalcommons.unl.edu/dissertations/AAI10102682

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