Managerial Entrenchment and Financial Reporting Comparability

Qifeng Wu, University of Texas at El Paso


This study examines whether managerial entrenchment has an association with firms' financial statement comparability. I find that managerial entrenchment has a significant negative association with financial statement comparability, providing a new notion about the management influence on financial reporting quality. Moreover, by using the business segment as a proxy for business complexity, I find that the variation of accounting comparability with its peer firms mainly stems from managers' investment choice. This finding supports FASB's assertion that financial statement comparability is a reporting quality that should be enhanced among firms with similar economic events. Lastly, I test if managerial entrenchment mitigates the expected positive relationship between financial statement comparability and post-merger returns. The test results show that entrenched managers tend to pay less attention to target firms' financial statement comparability in the process of due diligence. Collectively, these results suggest that managers' negative effect on financial statement comparability often stems from their investment choice. Consistent with prior literature, I document that financial statement comparability improves bidders' investment efficiency.

Subject Area

Accounting|Business administration|Finance

Recommended Citation

Wu, Qifeng, "Managerial Entrenchment and Financial Reporting Comparability" (2020). ETD Collection for University of Texas, El Paso. AAI27999203.