The Effect of Financial Statement Comparability on the Relevance of Accounting Information with Emphasis on the Role of Sophistication Investors and Information Asymmetry

Document Type : Research Paper


1 Ph.D. Candidate, Department of Accounting, Faculty of Administrative Sciences and Economics, Isfahan University, Isfahan, Iran.

2 Associate Prof., Department of Accounting, Faculty of Administrative Sciences and Economics, Isfahan University, Isfahan, Iran.

3 Assistant Prof., Department of Accounting, Faculty of Administrative Sciences and Economics, Isfahan University, Isfahan, Iran.


Objective: According to the theoretical concepts of financial reporting, financial statement comparability is one of the qualitative characteristics of information which increases the decision usefulness of relevant accounting information. Comparability affects the usefulness of accounting information through two characteristics of investors, namely their sophistication and information asymmetry. Therefore, the aim of this study is to investigate the effect of financial statement comparability on the relevance of accounting information with emphasis on the role of sophisticated investors and information asymmetry.
Methods: The statistical population of this study is all companies listed in the Tehran Stock Market, among them 80 companies in the period 2010 to 2018 have been selected by systematic elimination method.For data analysis and hypothesis testing, multivariate regression model based on compound data is used.
Results: The results of the research model estimation indicate that financial statement comparability has a positive and significant effect on relevance. The findings also show that when sophisticated investors are high, the impact of financial statement comparability on the relevance of accounting information increases. In addition, when information asymmetry is low the impact of financial statement comparability on the relevance of accounting information increases.
Conclusion: The results of this study showed that when there are more sophisticated investors and less private information, the financial statement comparability improves the information users’ ability to identify similarities and differences across economic phenomena. As a result, investors choose the best investment option that leads to efficient resource allocation.


Aboody, D., Lev, B. (2000). Information Asymmetry, R&D, and Insider Gains. The Journal of Finance, 55, (6), 2747-2766.
Aflatooni, A. & Amirbaghtiarvand, A. (2017). The Role of Disclosure Quality and Accruals Quality in Reducing the Deviation from the Optimal Capital Structure. Aseet management and financing, 4(19), 167-180.
Aghaei, M & Hasanzadeh, B. (2018). Accounting comparability and its effect on investment efficiency. Journal of accounting knowledge, 9(2), 7-34. (in Persian)

Bahar Moghaddam, M. & Mousavi, A. (2016). Impact of earnings sustainability and economic conditions on value relevance of accounting information. Journal of empirical research in accounting, 5(1), 89-112. (in Persian)

Basu, S. (1997). The conservatism principle and the asymmetric timeliness of earnings. Journal of Accounting and Economics, 24(1), 3–37.
Beisland, L. & Hamberg, M. (2013). Earning sustainability, economic condition and value relevance of accounting information. Scandinian journal of management, 29(3),314-324.
Bhattacharya, N. (2001). Investors' trade size and trading responses around earnings announcements: An empirical investigation. Accounting Review, 76(2), 221–244.
Bird, A., Karolyi, S. (2016). Do institutional investors demand public disclosure? The Review of Financial Studies, 29(12), 3245–3277.
Boni, L., Womack, K. (2006). Analysts, industries, and price momentum. Journal of Financial Quantitative Analysis, 41(1), 85–109.
Boone, A., White, J. (2015). The effect of institutional ownership on firm transparency and information production. Journal of Financial Economics, 117(3), 508–533.
Campbell, J., Yeung, E. (2017). Earnings comparability, accounting similarities, and stock returns: Evidence from peer firms’ earnings restatements. Journal of Accounting Auditing and Finance, 32(4), 480–509.
Chen, C., Collin, D., Kravet, T. & Richard, M. (2018). Financial Statement Comparability and the Efficiency of Acquisition Decisions. Contemporary Accounting Research, 35(1), 164–202.
Choi, J., Choi, S., Myers, L. & Ziebert, D. (2018). Financial Statement Comparability and the Informativeness of Stock Prices about Future EarningsContemporary Accounting Research, Forthcoming, 36(1), 389-417.
Collins, D., Gong, G., Hribar, P. (2003). Investor sophistication and the mispricing of accruals. Review of Accounting Studies8(3), 251–276.
Collins, D., Kothari, S. (1989). An analysis of intertemporal and cross-sectional determinants of earnings response coefficient. Journal of Accounting and Economic, 11(2-3), 143–181.
De Franco, G., Hope, O-K., Larocque, S. ( 2015). Analysts’ choice of peer companies. Review of Accounting Studies22, 82–109.
De Franco, G., Kothari, S., Verdi, R. (2011). The benefits of financial statement comparability. Journal of Accounting. Research, 49(4), 895–931.
Diamond, D. )1985(. Optimal release of information by firms. Journal of Finance, 40(4), 1071–1094.
Drake, M., Guest, N., Twedt, B. (2014). The media and mispricing: The role of the business press in the pricing of accounting information. Accounting Review, 89(5), 1673–1701.
Financial Accounting Standards Board . (2010). Statement of Financial Accounting Concepts No. 8.
Foroghi, D. & Ghasemzad, P. (2015). The effect of financial statement comparability on future earning response coefficients. Accounting and auditing review, 22(4), 479-500. 
(in Persian)
Francis, J., LaFond, R., Olsson, P., Schipper, K., (2007). Information uncertainty and post-earnings-announcement-drift. Journal of Business Finance and Accounting, 34(3-4), 403–433.
Hamaidian, N., Arabsalehi, M. & Amiri, H. (2018). Investiting the role of accounting uncertainty on investors reaction to earning announcement. Empirical Studies in Financial Accounting Quarterly, 14(57), 147-170. (in Persian)
Hayn, C. (1995). The information content of losses. Journal of Accounting and Economics, 20(2), 125–153.
Holthausen, R., Verrecchia, R. (1998). The effect of sequential information releases on the variance of price changes in an intertemporal multi-asset market. Journal of Accounting Research, 26(1), 82– 106.
International Accounting Standards Board, (2010). The conceptual framework for financial reporting 2010. IASB, London.
Kim, J., Li, L., Lu, L. & Yu, Y. (2016). Financial Statement Comparability and Expected Crash Risk. Journal of Accounting and Economics, 61(2-3), 294–312.
Kim, O., Verrecchia, R. (1994). Market liquidity and volume around earnings announcements. Journal of Accounting and Economics, 17(1-2), 41–67.
Kim, S., Kraft, P., & Ryan, S. G. (2013). Financial Statement Comparability and Credit Risk. Review of Accounting Studies, 18(3), 783–823.
Komiteh Tadvin Accounting Standards (2010). Accounting standards. Tehran. Auditing organization. (in Persian)
Kothari, S. (2001). Capital markets research in accounting. Journal of Accounting Economics, 31(1-3), 105–231.
Kothari, S., Li, X., Short, J. (2009). The effect of disclosures by management, analysts, and business press on cost of capital, return volatility, and analyst forecasts: A study using content analysis. Accounting Review, 84(5), 1639–1670.
Libby, R., Libby, P., & Hodge, F. (2017). Financial accounting, 9th edition. McGraw-Hill. New York.
Mehrabanpout, M. & Faraji, O., & Sajadpour, R. (2020). The mediating role of financial reporting quality on the relationship between financial statement comparability and cash holding. Accounting and auditing review, 27(1), 132-153. (in Persian)
Mikhail, M., Walther, B., & Willis, R. (2007). When security analysts talk, who listens? Accounting Review, 82(5), 1227–1253.
Neel, M. J. (2017). Accounting Comparability and Economic Outcomes of Mandatory IFRS Adoption. Contemporary Accounting Research, 34(2), 658–90.
Pástor, L., & Veronesi, M. (2009). Learning in financial markets. Annual Review of Financial Economics, 1(1), 361-381.
Robert, K., Sangwan, K., & Prianka, M.(2018). When Does Comparability Better Enhance Relevance?  Policy Implications from Empirical Evidence. Journal of Accounting and Public policy,37(5), 436-457.