Proprietary Costs of Financial Reporting, Country-Level Attributes, and Financial Statement Comparability

Previous studies indicate the existence of a negative relation between proprietary costs of financial reporting and financial statement comparability in the United States. However, this relation may vary depending on the strength of the financial reporting environment. Using four country-level latent factors suggested in Isidro, Nanda, and Wysocki (2020), this study investigates the impact of country-level attributes on the relation between proprietary costs of financial reporting and financial statement comparability. We find that the negative relation is stronger in countries with relatively poorer financial reporting environments. Furthermore, we find that strong protection of investor rights and better-developed capital markets are most effective in improving financial reporting quality, as evidenced by higher accounting comparability. This study provides guidance for standard setters in countries with poor financial reporting environments. Standard setters should emphasize strong protection of investor rights and further promote the development of capital markets to enhance firms’ financial reporting quality.