The Effect of Financial Statement Comparability on Future Earnings Response Coefficients

Document Type : Research Paper


1 Associate Professor, Accounting, University of Isfahan, Isfahan, Iran

2 MSc. in Accounting, University of Isfahan, Isfahan, Iran


The purpose of this research is to determine the effect of comparability as one of the qualitative characteristics of financial reporting on future earnings response coefficients. The future earnings response coefficients have been used as a criterion to measure the information content of the current stock prices about future earnings. In order to attain the research purpose, 80 companies among the listed companies in Tehran Stock Exchange during 1381 to 1392 (2002-2013) were selected as statistical samples. For analyzing data and testing hypotheses, multi variable regression model with compound data has been used. Findings of research signify that financial statement comparability increases the future earnings response coefficients. Results also indicate that the comparability causes the higher level of firm-specific information to be reflected in current stock prices.


Accounting Standards Committee. (2010). Accounting Standards. Tehran: Auditing Organization. (in Persian)
Ahmadpour, A. & Ahmadi, A. (2008). Using the Financial Information’s Qualitative Characteristics for Evaluating Earning Quality. Journal of the Accounting and Auditing Review, 15 (52): 3-16. (in Persian)
Ayers, B. & Freeman, R. (1997). Market Assessment of Industry and Firm Earnings Information. Journal of Accounting & Economics, 24 (2): 205-218.
Bahramfar, N. & Kardan, B. (2008). The Information Content of Financial Statements Accounting Numbers: A Model for Prediction of Earning. Journal of the Accounting and Auditing Review, 15 (52): 17-36. (in Persian)
Ball, R. & Brown, p. (1968). An Emprical Evaluation of Accounting Income Numbers. Journal of Accounting Research, 6(2): 159-178.
Barth, M. E., Landsman, W. R., Lang, M. H. & Williams, C. D. (2013). Effects on Comparability and Capital Market Benefits Of voluntary Adoption of IFRS By US Firms: Insights From Voluntary Adoption of IFRS by Non-US Firms. Working Paper, Available at
Brochet, F., Jagolinzer, A. & Riedl, E. (2013). Mandatory IFRS Adoption and Financial Statement Comparability. Contemporary Accounting Research, 30(4): 1371–1400.
Campbell, J. & Yeung, P. E. (2013). Comparability, Investor Sophistication, and Contagion Effects. Financial Accounting and Reporting Section Midyear Meeting, San Diego, California, January 12, 2013.
Choi, J. H., Myers, L. A., Zang, Y. & Ziebart, D. (2011). Do Management EPS Forecasts Allow Returns to Reflect Future Earnings? Implications for The Continuation of Management’s Quarterly Earnings Guidance. Review of Accounting Studies, 16 (1): 143-182.
Choi, J.H., Choi, S., Myers, L.A. & Ziebart, D. (2013). Financial Statement Comparability and the Ability of Current Stock Returns to Reflect the Information in Future Earnings. Working Paper, Available at
Collins, D.W., Kothari, S.P. & Rayburn, J.D. (1987). Firm Size and the Information Content of Prices with Respect to Earnings. Journal of Accounting and Economics, 9 (2): 111-138.
Collins, D.W., Kothari, S.P., Shanken, J. & G. Sloan, R. (1994). Lack of Timeliness and Noise As Explanations for The Low Contemporaneous Return-Earnings Association. Journal of Accounting & Economics, 18 (3): 289-324.
De Franco, G., Kothari, S.P. & Verdi, R.S. (2011). The Benefits of Financial Statement Comparability. Journal of Accounting Research, 49 (4): 895-931.
Durnev, A., Morck, R., Yeung, B., & Zarowin, P. (2003). Does Greater Firm-Specific Return Variation Mean More or Less Informed Stock Pricing? Journal of Accounting Research, 41 (5): 797-836.
Fernandes, N. & Ferreira, M.A. (2009). Insider Trading Laws and Stock Price Informativeness. Review of Financial Studies, 22 (5): 1845-1887.
Financial Accounting Standards Board (FASB). (1980). Statement of Financial Accounting Concepts No. 2: Qualitative Characteristics of Accounting Information.
Gelb, D.S. & Zarowin, P.A. (2002). Corporate Disclosure Policy and the Informativeness Of stock Prices. Review of Accounting Studies, 7 (1): 33-52.
Golarzi, G. & Zangouri, Z. (2013). The Relationship between Earnings Quality and Stock Return, Intermediation of Institutional Ownership in Enlisted Companies in Tehran Stock Exchange. Journal of the Accounting and Auditing Review, 20 (2): 65-86. (in Persian)
Haghighat, H. & Raigan, E. (2009). Investigating the Effect of Income Smoothing on Information Content of Current Earnings about Predicting Future Earnings. Journal of the Accounting and Auditing Review, 16 (54): 33-46.
(in Persian)
Haw, I. M., Hu, B., Lee, J. J. & Wu, H. (2012). Investor Protection and Price Informativeness about Future Earnings: International Evidence. Review of Accounting Studies, 17 (2): 389-419.
IASB & FASB. (2008). Exposure Draft Conceptual Framework for Financial Reporting: The Objective of Financial Reporting and Qualitative Characteristics and Constraints of Decision-Useful Financial Reporting Information. Available at
Kim, S., Kraft, P., & Ryan, S. G. (2013). Financial Statement Comparability and Credit Risk. Review of Accounting Studies, 18 (3): 783-823.
Kordestani, G. R. & Ashtab, A. (2010). Bubble Identification in Tehran's Stock Exchange: Evidence Based on Time-Varying Present Value Model. Journal of the Accounting and Auditing Review, 17 (2): 93-108. (in Persian)
Levin, A., Lin, CF. & Chu, J. (2002). Unit Root Tests in Panel Data: Asymptotic and Finite Sample Properties. Journal of Econometrics, 108 (1): 1-24.
Lundholm, R. J. & Myers, L. A. (2002). Bringing the Future Forward: The Effect of Disclosure on The Returns-Earnings Relation. Journal of Accounting Research, 40 (3): 809-839.
Mergenthaler, R.D., Chen, C.W., Collins, D.W. & Kravet, T. (2014). Financial Statement Comparability and the Efficiency of Acquisition Decisions. Financial Accounting and Reporting Section Midyear Meeting, Houston, Texas, January 10, 2014.
Orpurt, S. & Zang, Y. (2009). Do Direct Cash Flow Disclosures Help Predict Future Operating Cash Flows and Earnings? The Accounting Review, 84 (3): 893-935.
Piotroski, J. & Roulstone, D. (2004). The influence of analysts, institutional investors and insiders on the incorporation of market, industry and firm-specific information into stock prices. The Accounting Review, 79 (4): 1119-1152.
Pourheydari, O., Zarezade Karizi, M. S. & Taker, R. (2012). The Investigation Impact of audit Quality on Earnings Predictability from Investors Viewpoint. Journal of Accounting Knowledge and Management Auditing, 1 (4): 15-26. (in Persian)
Rahmani, A. & Ramsheh, N. (2014). Trade-off between Accrual-Based Earnings Management and Real Activities Manipulation. Journal of the Accounting and Auditing Review, 20 (4): 39-60. (in Persian)
Rahmani, A., Bashirimanesh, N. & Shahrokhi, S. (2012). Effects of Management Earnings Forecasts on Future Earnings Response Coefficient. Journal of Accounting Knowledge, 3 (10): 29-50. (in Persian)
Tucker, J. W. & Zarowin, P. A. (2006). Does Income Smoothing Improve Earnings Informativeness? The Accounting Review, 81 (1): 251-270.
Wang, C. (2014). Accounting Standards Harmonization and Financial Statement Comparability: Evidence from Transnational Information Transfer. Journal of Accounting Research, (In press).