Financial Statement Comparability and Cash Holdings : the Mediating Role of Disclosure Quality and Financing Constraints

Purpose: The purpose of this study is to examine the impact of financial statement comparability as a qualitative feature of financial reporting on cash holdings and the mediating role of disclosure quality and financing constraints in firms listed on the Tehran Stock Exchange (TSE).Design/methodology/approach: Using panel data from 110 TSE-listed firms from 2011 to 2017 in Iran, this study uses the regression analysis to examine the research hypotheses. The first hypothesis examines the relationship between financial statements comparability and cash holdings and two other hypotheses examine the mediating role of financing constraints and disclosure quality in this relationship.Findings: Based on pecking-order theory and institutional context of Iranian firms, the results show that financial reporting comparability has a significant negative impact on corporate cash holdings. The results also show that disclosure quality and financing constraints have no mediating role in the relationship between accounting comparability and cash holdings. The robustness tests with alternative measures of accounting comparability and cash holdings support the findings of this study.Research limitations/implications: The limitations of this study are as follows: limited number of TSE companies that have necessary data to conduct research; and using the disclosure quality scores provided by TSE organization.Practical implications: The findings suggest that creditors should consider the financial status and also the quality of financial reporting of companies, before granting credit to them. It is also recommended that regulators in the capital market publish the ratings of companies in terms of financial statement comparability alongside the disclosure ratings and a continuous regulatory oversight on companies.Originality/value: To the best of the authors’ knowledge, this is the first empirical research on the effect of accounting comparability on the level of cash holdings that examines the mediating role of financing constraints in the context of Iran market as an emerging economy. Moreover, this is the first empirical research that studies the effect of disclosure quality on this relationship