The effect of consistency in accounting choices on financial statement comparability : evidence from South Korea

Purpose: To empirically document the proposition "Comparability is the goal; consistency helps to achieve the goal" (IFRS Conceptual Framework 2.26), we investigate whether accounting changes affect financial statement comparability and whether income smoothing through accounting changes has different effects on financial statement comparability. Design/methodology/approach: We conduct pooled OLS regressions with standard errors corrected for both firm and year level clustering to test all the analyses.We also use the propensity score matching method to construct a sample with accounting changes (treatment sample) and a sample without accounting changes (control sample). Findings: We find evidence consistent with our hypotheses that accounting changes reduce financial statement comparability.We also find that income smoothing improves financial statement comparability, but income smoothing through accounting changes reduces financial statement comparability. Research limitations/implications: There is a small number of firms that made accounting changes, so it would be worthwhile for future research to analyse a larger sample with various types of accounting changes. Originality/value: The main contribution of the study is that we empirically document one aspect of the conceptual framework that consistency helps to improve comparability