Financial Statement Comparability and Managers' Use of Corporate Resources

Objective: The comparability of financial statements enables investors to recognize and understand the similarities and economic differences of comparable companies, and this feature can affect different valuation judgments of market participants, so the purpose of this study is to how to influence the comparability of financial statements is based on the value of the shareholder, which has been examined through the comparability test of managers' use of corporate resources, including cash holdings, capital expenditures, investments. The ability to compare financial statements facilitates the supervision of investors and increases the accuracy of managers in the use of corporate resources, and in this way, the value of the company is strengthened. This feature enables investors to see comparable companies' economic similarities and differences. Recognize and understand. By facilitating the comparison of information disclosure of a company with other similar companies, investors can make better conclusions about the performance of that company. The comparability feature in similar companies is particularly important and allows investors to obtain relevant information without relying on the company's disclosure. In particular, in cases where managers use reporting powers to lack transparency and hide bad news, improving the comparison of information will allow external investors to understand better how Managers allocate resources and pay attention. As a result, investors will be more able to recognize managers' misuse of corporate resources. This helps managers direct resources towards projects with positive net present value. In other words, comparing financial statements reduces the information asymmetry between managers and external investors by facilitating the detection of timely signals about the profitability of completed projects and monitoring the consumption of corporate resources. Comparability enables the external monitoring of managers' use of corporate resources, specifically corporate cash, so it is predicted that the comparability of financial statements will force managers to use the cash more efficiently. Therefore, the market will place a higher value on corporate cash holdings with more comparability of financial statements.
Since comparability increases external investors' monitoring of managers' use of corporate resources, therefore, from a perspective similar to the issue of the final value of cash holdings, we expect managers to spend capital more efficiently and effectively, and therefore, with increased comparability, investor's financial statements will show capital expenditures to help increase the value. Comparability not only allows investors to better understand the profitability of projects carried out by managers but also investors can better infer information about the value of a company based on the performance or disclosure of similar companies. Therefore, comparability reduces information asymmetry between managers and investors, increasing investment efficiency. Based on this argument, we expect that companies with more comparability of financial statements will not participate in investment more (less) than the limit and thus increase the efficiency of investment. Therefore, the current research aims to investigate the effect of the comparability of financial statements on the way managers use corporate resources.
Methods: A multivariate regression model based on panel data has been used to test the research hypotheses. The statistical population of this study is all companies listed on the Tehran Stock Exchange, and 102 companies from 2008 to 2018 have been selected by systematic method.
Results: Financial statement comparability positively and significantly affects the marginal value of cash holdings but does not significantly affect capital expenditures. The results also indicate the positive and significant effect of increasing comparability on investment efficiency.
Conclusion: The results of examining the first hypothesis of the research showed that by increasing the comparability of financial statements, shareholders add more value to the company's cash holding, and the marginal value of it increases. The results support that financial statement comparability facilitates investors' monitoring and increases managers' accuracy in using corporate resources. The results of this hypothesis contribute to the literature on cash holding value because previous studies have shown that cash holding reduces the firm's value on average. Still, this study showed that the depreciation of cash holdings can be reduced by comparing financial statements. The results of the second hypothesis of the research showed that the financial statement comparability did not significantly affect capital expenditures in the companies listed on the Tehran Stock Exchange. It was expected that if financial statements were comparable, investing in capital expenditures should be done more efficiently by monitoring the activities of managers. Also, the results of testing the third hypothesis of the research indicate that by comparing the financial statements of similar companies, investors can make an appropriate decision in the optimal allocation of resources and, thereby, increase their investment efficiency. Our results suggest that comparability facilitates investor monitoring of managers' use of corporate resources, which enhances shareholder value. Based on the research findings, it is suggested to the stock exchange organization and accounting standards setter that companies be required to provide comparable accounting information in the industry so that investors can monitor the behavior of managers.