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    Are Financial Statements More Comparable When GAAP Limits Managers’ Discretion?

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    Author
    Young, Spencer Neal
    Issue Date
    2020
    Keywords
    Comparability
    Discretion
    Financial statements
    Generally Accepted Accounting Principles
    Standard setting
    Advisor
    Mergenthaler, Richard
    
    Metadata
    Show full item record
    Publisher
    The University of Arizona.
    Rights
    Copyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction, presentation (such as public display or performance) of protected items is prohibited except with permission of the author.
    Abstract
    This study examines whether financial statements are more comparable when accounting standards limit managers’ discretion. I measure the extent to which GAAP limits managers’ discretion by counting the number of times obligatory language is used in each standard. My primary findings suggest financial statements are less comparable when GAAP limits managers’ discretion and that this effect is driven by firm-pairs that have dissimilar transactions. Further, using SFAS 141 and SFAS 86 as salient examples, I provide evidence that accounting for similar transactions using similar accounting treatments, as required by SFAS 141, is associated with more comparable financial statements, yet accounting for dissimilar transactions using similar accounting treatments, as required by SFAS 86, is associated with less comparable financial statements. Last, I examine how the impact of limiting discretion on comparability affects the cost of equity. My findings suggest that the cost of equity is higher when GAAP limits managers’ discretion and that a substantial portion of this increase is driven by the decline in comparability associated with limiting managers’ discretion.
    Type
    text
    Electronic Dissertation
    Degree Name
    Ph.D.
    Degree Level
    doctoral
    Degree Program
    Graduate College
    Accounting
    Degree Grantor
    University of Arizona
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