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The Accounting Review

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Information Asymmetry, Diversification, and Cost of Capital
Recently, there has been considerable interest among accounting researchers in the relation between asymmetric information and cost of capital. A number of empirical studies document associations betw...

The Effects of Contracting, Litigation, Regulation, and Tax Costs on Conditional and Unconditional Conservatism: Cross-Sectional Evidence at the Firm Level
Prior studies propose four explanations for accounting conservatism, and recent studies classify conservatism into two forms: conditional and unconditional conservatism. This paper examines whether ea...

The Accounting Review / Volume 82 / Issue 3 / ARTICLES

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Information Pursuit in Financial Statement Analysis: Effects of Choice, Effort, and Reconciliation

The Accounting Review 82 (3), 731 (2007);
doi: 10.2308/accr.2007.82.3.731

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Mark W. Nelson
Cornell University.

William B. Tayler
Cornell University

Prior research provides evidence that information affects financial statement users' judgments less when that information is provided in a less accessible format (e.g., information disclosed in a footnote or less prominent financial statement rather than being recognized on the income statement [Maines and McDaniel 2000]). We provide evidence that, conditional on users performing the analysis necessary to transform the financial statements to appear as if disclosed information had been recognized, that information may affect users' judgments more than it would have if it had been recognized initially. Our experiments are set in the context of constructive capitalization of operating leases. The first experiment manipulates three variables that we hypothesize will contribute to this effect: choice to use transformed financial statements, effort spent on the transformation process, and reconciliation of pre- and post-transformation numbers. We provide evidence that, in the constructive-capitalization setting we operationalize, information has a greater effect on judgments when effort was expended to obtain the information and the information is displayed in a reconciled format. The second experiment focuses on the effort effect and replicates it with additional controls. These results have implications for standard-setters who consider the relative benefits of recognition and disclosure, and for financial statement users who transform financial statements as part of their analyses. ©2007 American Accounting Association

History: | Submitted January 2006; accepted September 2006

Permalink:

http://link.aip.org/link/ACRVAS/v82/i3/p731/s1

PUBLICATION DATA

ISSN:

0001-4826 (print)   1558-7967 (online)

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American Accounting Association

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