Managerial short‐termism and financial statement comparability

Abstract

AbstractThis study examines the association between managerial short‐termism and financial statement comparability. Using a short‐termism measure constructed through textual analysis and machine learning based on a Chinese language setting in management discussion and analysis (MD&A), we find that firms with higher short‐termism produce financial statements with lower comparability and that this effect disappears in short‐horizon industries. We further find that the increased comparability is associated with an improvement in analysts' forecasts only in non‐short‐horizon industries. Overall, our findings suggest that firms with greater managerial short‐termism are more likely to have unusual corporate behaviours, thus having worse comparability with other firms.