The Usefulness of Financial Accounting Information: evidence from the field

Event Date: 18 October 2017

Speaker: Mark Clatworthy, University of Bristol

Time: 2pm

Venue: Strathclyde Business School, Stenhouse Wing SW108

Abstract:

We provide causal evidence on the determinants of financial accounting information usefulness via an international factorial survey of experienced investment professionals. We examine whether assessments of relevance and representational faithfulness are affected by investment professionals’ information acquisition objectives and by compensation-induced earnings management incentives of the reporting manager. We also present novel descriptive evidence on experienced investment professionals’ assessments of the relevance and representational faithfulness of financial accounting information. We find that investment professionals primed with a managerial performance evaluation objective assess financial accounting information to be less relevant than those primed with a firm valuation objective. However, we find no robust evidence that basing managerial compensation on financial accounting information affects assessments of representational faithfulness. Investment professionals’ views of representational faithfulness are positively associated with their assessments of corporate governance quality and negatively associated with the assessed complexity of the accounting measurement system. These findings improve our understanding of target users’ views of fundamental qualitative characteristics of financial reporting information.

Published: 17 October 2017