Bordeman, Adam
[VerfasserIn]
;
Shane, Philip B.
[Sonstige Person, Familie und Körperschaft];
Smith, David B.
[Sonstige Person, Familie und Körperschaft];
Zhang, Suning
[Sonstige Person, Familie und Körperschaft]
Financial Reporting Comparability and Costs of Seasoned Equity Offerings
Anmerkungen:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments August 26, 2019 erstellt
Beschreibung:
This study examines whether financial statement comparability plays a significant role in mitigating costs of capital in the market for seasoned equity offerings (SEOs). The FASB refers to comparability as a qualitative characteristic of financial reporting that enhances the decision-usefulness of relevant and representationally faithful accounting information (FASB 2010). DeFranco, Kothari, and Verdi (DKV 2011) emphasize that two similar firms have comparable accounting systems if, for a given set of economic events, they produce similar financial statements (p. 899). For each SEO firm in our sample, we refer to financial analysts' coverage decisions in order to identify five peer firms most likely to be impacted in the same way by similar economic events. Then, as in DKV, we measure comparability of financial accounting information produced by the SEO firm, as compared to that of its peer firms, with reference to the same economic events. We argue that financial statement comparability allows underwriters and investors to more efficiently assess the financial health and prospects of firms that tap into the SEO market. We expect that underwriters expend less effort and potential shareholders experience less adverse selection risk for firms with more comparable financial statements, thus lowering the costs of the SEO. We hypothesize and find that comparability is negatively related to SEO costs, including underwriter fees, underpricing, and the probability of SEO withdrawal. We also find that comparability is negatively (positively) related to information asymmetry (information precision and transparency), and comparability incrementally explains costs of capital in the market for SEOs. Our findings provide empirical evidence making an important contribution to academic literature studying the consequences of financial reporting quality in capital markets. Our study also provides support for the FASB's characterization of financial reporting comparability as an important quality-enhancing characteristic of decision-useful accounting information