We propose a pairwise measure of financial statement benchmarking (FSB) that captures the degree of overlap in the financial statement line items reported by two firms. We validate FSB by showing its association with actual peer choices of analysts and corporate boards. We then test the practical implications of FSB in the context of strategic peer selection by these parties. We find that analyst (board) chosen peers with low pairwise FSB are more likely to be strategic selections and that the set of peers assembled by an analyst (board) collectively having low FSB is associated with more optimistic earnings forecasts (higher CEO overpay). We also demonstrate alternative applications of FSB by aggregating the pairwise measure at the firm level and decomposing it into finer financial statement-specific components. Our evidence suggests that FSB can be a relevant tool for those using benchmarking applications, including practitioners and academics. Data Availability: Data are available from sources identified in the paper.

This study uses difference-in-differences (DiD) analyses to examine the consequences of adopting the U.S. critical audit matter (CAM) disclosure requirement for preparers and users of financial reports. The CAM requirement is one of the largest expansions of the U.S. audit report since the 1940s. We document significant changes to financial statement footnotes referenced by CAMs, which suggests an indirect consequence where management disclosure changes in areas that are expected to be scrutinized following auditor-provided disclosure. Results also suggest that, on average, CAM disclosures do not provide incremental information to the market. To further examine market reaction, we develop well-specified prediction models for the expected number and subject areas of CAMs. We find limited initial evidence that the market reacts negatively when unexpected CAMs are disclosed. Overall, our findings provide insights on the new CAM standard and particularly demonstrate its relevance to management disclosure decisions and to the market.