An XBRL-Based Measure of Financial Statement Comparability
Using financial statements reported with eXtensible Business Reporting Language (XBRL), we develop and validate a measure of financial statement comparability (FSC), which captures the degree of overlap in accounting concepts reported in financial statements of industry peers. XBRL is particularly suitable for this task because the use of XBRL was mandated by the Securities and Exchange Commission to create standardized accounting tags that enable the comparison of accounting information across firms. Previous studies have consistently demonstrated that existing comparability measures are associated with better capital market outcomes. In contrast, findings with respect to financial reporting and the disciplinary nature of comparability over managerial decisions are less consistent. We first validate FSC by testing its relevance in well-established contexts and find that FSC complements other comparability measures. Specifically, FSC is associated with improved analyst performance and lower information asymmetry among investors. We then document that higher FSC is associated with lower accruals-based earnings management and lower restatement likelihood. We further find an inverse association between FSC and real activities management. Evidence suggests that our proposed input-based measure of comparability is beneficial in various contexts, specifically for outcomes related to financial reporting and managerial discretion.