Essays on Accounting Consistency
This study develops a measure of accounting consistency based on the idea that the accounting function is the accounting measurement system that managers use to translate economic events to financial statements. When a firm uses accounting policies and estimates consistently, one can estimate its current-year earnings accurately by applying prior years’ accounting function to the current-year economic events. Empirically, I find that my accounting consistency measure is positively associated with analyst following and forecast accuracy, and negatively associated with analyst forecast dispersion. To further test the effect of accounting consistency on analyst behavior, I examine the impact on analyst forecasts of accounting policy changes, which reduce accounting consistency. I find that accounting policy changes decrease analyst forecast accuracy and increase analyst forecast dispersion. These results suggest that accounting consistency benefits financial statement users. This study also examines the impact of SFAS No. 154, Accounting Changes and Error Corrections, on the information processing of financial analysts. SFAS No. 154 is issued to improve accounting consistency between periods when there is a voluntary accounting policy change. Using 969 voluntary accounting policy changes from 1994 to 2015, I find that the impact of voluntary accounting policy changes on analyst forecast accuracy and dispersion is weaker under SFAS No. 154 than under the predecessor standard, APB Opinion No. 20, indicating that SFAS No. 154 improves financial reporting usefulness by enhancing accounting consistency. This finding provides evidence for standard setters and regulators regarding the benefits of SFAS No. 154 adoption.
URI for this recordhttp://hdl.handle.net/1974/24413
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