Managerial Entrenchment And Financial Reporting Comparability

This study examines whether managerial entrenchment has an association with firms\u27 financial statement comparability. I find that managerial entrenchment has a significant negative association with financial statement comparability, providing a new notion about the management influence on financial reporting quality. Moreover, by using the business segment as a proxy for business complexity, I find that the variation of accounting comparability with its peer firms mainly stems from managers\u27 investment choice. This finding supports FASB\u27s assertion that financial statement comparability is a reporting quality that should be enhanced among firms with similar economic events. Lastly, I test if managerial entrenchment mitigates the expected positive relationship between financial statement comparability and post-merger returns. The test results show that entrenched managers tend to pay less attention to target firms\u27 financial statement comparability in the process of due diligence. Collectively, these results suggest that managers\u27 negative effect on financial statement comparability often stems from their investment choice. Consistent with prior literature, I document that financial statement comparability improves bidders\u27 investment efficiency