Accounting comparability among peer firms in the same industry reflects the similarity and the relatedness of firms’ operating environments and financial reporting. From the perspectives of “inherent audit risk” and “external information efficiency,” comparability is helpful for auditors in assessing client audit risk and lowers the costs of information acquisition, processing, and testing. I posit that the availability of information about comparable clients helps improve audit efficiency and accuracy. Empirical results show that comparability is negatively related to audit effort (surrogated by audit fees and audit delay). Moreover, comparability is negatively associated with the likelihood of audit opinion errors. These findings are robust to different specifications of regression models, particularly for the “endogeneity” issues due to the possible reverse causality that auditor style might influence client firms’ comparability. In sum, the study shows that accounting comparability enhances the utility of accounting information for external audits.

Recent microstructure research finds that liquidity risk, in particular its information component, plays an important role in explaining the post‐earnings‐announcement drift ( PEAD ). We decompose liquidity risk into an accounting‐associated component and a nonaccounting‐associated component and examine their relative importance in explaining PEAD . Our research is motivated by recent findings that liquidity risk is a systematic risk and earnings quality is negatively associated with liquidity risk. We find that the accounting‐associated component is more strongly related to PEAD returns than is its nonaccounting‐associated counterpart. Further analyses reveal that the relation between accounting‐associated liquidity risk and PEAD returns is weaker for firms with greater analyst following. We also find that in a significant market downturn, the relation between accounting‐associated liquidity risk and PEAD returns becomes more pronounced. Our study is the first to document a liquidity risk‐based role of accounting quality in explaining the PEAD phenomenon. It parses out the PEAD risk premia associated with accounting versus nonaccounting sources and, by so doing, sheds light on the role of accounting quality in shaping the liquidity risk‐ PEAD returns relation.

This study examines the role of information transparency in facilitating peer firms' investment in follow‐on innovation. We capture information transparency with both textual and numerical information disclosed in 10‐Ks. Using patent citations to proxy for investment in follow‐on innovation, we predict and find a positive association between transparency at the knowledge source and follow‐on innovation. We further show that the effect of information transparency varies with the degree of uncertainty around technological innovation. Thus, the evidence suggests that information transparency facilitates investment in follow‐on innovation by resolving uncertainty associated with investment in technological innovation. An analysis using the cited firms' going‐private decision as a negative shock to information transparency confirms the significant effect of a cited firm's disclosure on its decision to invest in follow‐on innovation. Our study contributes to the literature on the positive externalities of peer‐firm disclosures and highlights the important role of information transparency in shaping innovation investment decisions.