Financial statement comparability and corporate investment efficiency

Ahmed Al-Hadi, Ahsan Habib, Grantley Taylor, Mostafa Hasan, Khamis H. Al-Yahyaee

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)


Purpose: The purpose of this paper is to examine the relation between financial statement comparability and corporate investment efficiency of a large sample of US firms.

Design/methodology/approach: The authors use a large sample of US-listed firms from 1981 to 2013. The authors use several econometric methods including ordinary least square, firms fixed effects and mediation effects regression. Sensitivity tests that include the use of alternative measures of both the dependent and independent variables provide results that are consistent with the authors’ baseline model results.

Findings: The authors find that financial statement comparability mitigates risks associated with both under-investment and over-investment. They also find that product market competition mediates the relation between financial statement comparability and investment efficiency. The authors consider this to be a function of a competitive environment, whereby firms normally disclose less private information. This in turn reduces the effect of financial statement comparability on investment efficiency. Conversely, where there are higher levels of product market competition, it is less likely that firms will under-invest. Their results are consistent with these predictions.

Originality/value: The authors contribute to this growing field of research by providing evidence that financial statement comparability does in fact improve firms’ investment efficiency. Findings enhance our understanding of the relation between investment efficiency and financial statement comparability which is likely to have flow-on effects in terms of financial reporting quality and firm value. This study also contributes to research that links agency theory to financial statement comparability through an analysis of moral hazard and adverse selection tenets, and how it leads to reduced levels of investment inefficiency in a firm.
Original languageEnglish
Pages (from-to)1283-1313
Number of pages31
JournalMeditari Accountancy Research
Issue number6
Early online date23 Nov 2020
Publication statusPublished - 25 Nov 2021


  • Financial statement comparability
  • Investment efficiency
  • product market competition


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