THE EFFECT OF FINANCIAL STATEMENT COMPARABILITY ON PRICE DISCOVERY

64 pagesI investigate the effect of financial statement comparability on the price discovery process. Using an input-based measure of comparability and the setting of earnings announcements, I document greater short-window price reactions to earnings news when firms have higher comparability in their financial statements. The new information is impounded into prices more quickly, and there is less post-earnings-announcement drift. Meanwhile, the relative order of earnings announcements does not influence the relation between comparability and price discovery. When comparability is high, investors are more likely to search for peer information before and during announcements. Taken together, this study provides empirical evidence that financial statement comparability reduces information processing costs and improves the speed of price discovery