How Does Managerial Entrenchment Relate to Financial Statement Comparability?
This study examines whether managerial entrenchment is associated with firms’ financial statement comparability. We find that managerial entrenchment has a significant negative effect on financial statement comparability, providing new insights into the internal, managerial effects on financial reporting quality. Moreover, by using business segments as a proxy for business complexity, we confirm that the variation of accounting comparability with its peer firms mainly stems from managers’ investment choices, supporting FASB’s assertion that financial statement comparability is a reporting quality that should be enhanced among firms with similar economic foundations. Lastly, we test whether managerial entrenchment affects mergers and acquisitions decisions. We show that entrenched managers tend to pay less attention to target firms’ financial statement comparability in the process of due diligence, and that the post-merger returns from these acquisition deals are lower because of managerial entrenchment. Our results hold with alternative measures of financial statement comparability
Year of publication: |
[2022]
|
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Authors: | Folsom, David ; Perez, Rebeca ; Wu, Qifeng (Charles) |
Publisher: |
[S.l.] : SSRN |
Saved in:
freely available
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