Impact of Shared Analyst Coverage on Financial Statement Comparability

This study examines the impact of shared analyst coverage on the comparability of financial statements. Analysts form information expectations based on the portfolio of firms they follow. I document that managers cater to analyst information expectations by increasing the comparability of their financial statements with that of other firms in the analyst portfolio. The findings are robust to two exogenous shocks: brokerage house closures and regulation fair disclosure. The increase in comparability is achieved by modifying accounting policies related to depreciation, acquisition/sales, inventory, investment tax credit, and PP&E. The effect is concentrated among firms characterized by strong corporate governance, poor information environment, and firms that employ principle-based accounting. Additionally, managers cater to the expectations of prominent analysts differentially more than other analysts. Overall, this study documents the role of analyst expectations in shaping financial reporting choices and the comparability of financial statements