Dark Side of Financial Statement Comparability: Evidence from Stock Price Synchronicity in a Culturally Tight Country

Abstract

I document evidence that financial statement comparability curbs the incorporation of firm-specific information into stock prices, resulting in higher stock price synchronicity in China. The positive comparability-synchronicity relationship is more pronounced when firms operate in culturally tight provinces, are less innovative, have poor financial performances, have high disclosure opacity, and have weak corporate governance mechanisms. Using the effect of China’s 2007 accounting standards as a regulatory shock, I find that an exogenous increase in comparability leads to an increase in synchronicity. Finally, I find that comparability increases future systematic risks and decreases future firm values. In contrast to the extant literature, the findings of this study show that financial statement comparability adversely affects information environments in a culturally tight country.