Impact of Shared Analyst Coverage on Financial Statement Comparability

This study presents novel evidence that managers increase comparability of financial statements with other firms that share analyst coverage. This increase in comparability is to cater to shared analyst information expectations. The findings are robust to instrumental variable tests and two exogenous shocks, namely brokerage closures and regulation fair disclosure. The increase in comparability is achieved by modifying accounting policies related to depreciation, acquisition/sales, inventory, investment tax credit, and PP&E. The effect is concentrated among firms characterized by better corporate governance, poor information environment, and firms that employ principle-based accounting. Additionally, the increase in comparability is stronger when the shared analysts are industry experts, experienced, well-connected with the buy-side of the capital market, quick to issue forecasts, accurate, optimistic, and are affiliated with larger brokerage houses. Overall, this study documents the role of analyst expectations in shaping financial reporting choices and comparability of financial statements.