Economic policy uncertainty and financial statement comparability

Sandip Dhole, Li Liu, Gerald J. Lobo, Sagarika Mishra

Research output: Contribution to journalArticleResearchpeer-review

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.

Original languageEnglish
Article number106800
Number of pages21
JournalJournal of Accounting and Public Policy
Volume40
Issue number1
DOIs
Publication statusPublished - Jan 2021

Keywords

  • Accounting estimates
  • Accounting policy choice
  • Economic policy uncertainty
  • Financial statement comparability

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