The Usefulness of Financial Accounting Information: Evidence from the Field

The Accounting Review (forthcoming)

62 Pages Posted: 28 Jul 2017 Last revised: 4 Dec 2020

See all articles by Stefano Cascino

Stefano Cascino

London School of Economics

Mark Clatworthy

University of Bristol, School of Accounting and Finance

Beatriz Garcia Osma

Universidad Carlos III de Madrid - Department of Business Administration; European Corporate Governance Institute (ECGI)

Joachim Gassen

Humboldt University of Berlin - School of Business and Economics; TRR 266 Accounting for Transparency

Shahed Imam

University of Warwick - Warwick Business School

Date Written: December 3, 2020

Abstract

We examine how investment professionals assess the usefulness of financial accounting information depending on their information acquisition objectives and preparers’ earnings management incentives. We conduct a survey experiment based on face-to-face interviews with investment professionals and document two main results. First, we find that, compared with investment professionals assigned a firm valuation objective, those assigned a managerial performance evaluation objective assess accounting information as significantly less useful. Second, we find no systematic evidence that preparers’ earnings management incentives negatively affect investment professionals’ assessments of accounting information usefulness. To elucidate this second finding, we conduct a large-scale follow-up online experiment. Our results continue to offer no support for the effect of earnings management incentives on investment professionals’ assessments of accounting information usefulness, irrespective of preparers’ corporate governance quality. Instead, we find that poor corporate governance, by itself, reduces the usefulness of accounting information to investment professionals.

Keywords: Decision Usefulness, Financial Reporting Objectives, Earnings Management, Corporate Governance, Investment Professionals, Relevance, Representational Faithfulness

JEL Classification: G15, G18, G38, M41, M48

Suggested Citation

Cascino, Stefano and Clatworthy, Mark A. and Garcia Osma, Beatriz and Gassen, Joachim and Imam, Shahed, The Usefulness of Financial Accounting Information: Evidence from the Field (December 3, 2020). The Accounting Review (forthcoming), Available at SSRN: https://ssrn.com/abstract=3008083 or http://dx.doi.org/10.2139/ssrn.3008083

Stefano Cascino

London School of Economics ( email )

Houghton Street
London, WC2A 2AE
United Kingdom
+44 (0)20 7955 6457 (Phone)
+44 (0)20 7955 7420 (Fax)

HOME PAGE: http://www.lse.ac.uk/accounting/people/stefano-cascino

Mark A. Clatworthy (Contact Author)

University of Bristol, School of Accounting and Finance ( email )

Priory Road Complex
Priory Road
Bristol, BS8 1TN
United Kingdom
+44(0)1173941479 (Phone)

Beatriz Garcia Osma

Universidad Carlos III de Madrid - Department of Business Administration ( email )

Calle Madrid 126
Getafe, Madrid, Madrid 28903
Spain

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Joachim Gassen

Humboldt University of Berlin - School of Business and Economics ( email )

Spandauer Str. 1
Berlin, D-10099
Germany
+49 30 2093 5764 (Phone)
+49 30 2093 5670 (Fax)

TRR 266 Accounting for Transparency

Warburger Straße 100
Paderborn, 33098
Germany

Shahed Imam

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

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