Do Changes in Financial Reporting Standards Alter Capital Allocations? An Industry-Focused Analysis

Event Date: 19 January 2022

Speaker: Annelies Renders, Maastricht University

Time: 2pm (Zoom details emailed to faculty the week prior, otherwise please email donna.irving@strath.ac.uk)

Abstract:

This study examines whether changes in financial accounting standards improve capital market participants’ ability to use financial reporting when making their capital allocation decisions. In doing so, we explore the staggered introduction of industry-specific standards by the FASB. We predict and find an, on average, increase in firms’ capital growth in years following the introduction of the relevant industry accounting standard. We also find evidence that this finding is at least partly attributable to the introduction of such standards being associated with an increase in financial statement transparency and financial reporting comparability. We also find predictable differences in capital growth for standards that are likely to be more informative to investors. Additional findings show that capital flows primarily to firms revealing stronger prospects (growth opportunities) after the introduction of industry-specific standards and to firms that were relatively capital constrained before the introduction of the standard.  

Published: 9 February 2022