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A New Measure of Disclosure Quality: The Level of Disaggregation of Accounting Data in Annual Reports

Journal of accounting research, 2015-12, Vol.53 (5), p.1017-1054 [Peer Reviewed Journal]

2015 The Accounting Research Center at the University of Chicago Booth School of Business ;Copyright ©, University of Chicago on behalf of the Accounting Research Center, 2015 ;ISSN: 0021-8456 ;EISSN: 1475-679X ;DOI: 10.1111/1475-679X.12094 ;CODEN: JACRBR

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  • Title:
    A New Measure of Disclosure Quality: The Level of Disaggregation of Accounting Data in Annual Reports
  • Author: CHEN, SHUPING ; MIAO, BIN ; SHEVLIN, TERRY
  • Subjects: Accounting ; Analysis ; Annual reports ; Compustat ; D83 ; disaggregation of data items ; Disclosure ; disclosure quality ; M41 ; Studies
  • Is Part Of: Journal of accounting research, 2015-12, Vol.53 (5), p.1017-1054
  • Description: We construct a new, parsimonious, measure of disclosure quality—disaggregation quality (DQ)—and offer validation tests. DQ captures the level of disaggregation of accounting data through a count of nonmissing Compustat line items, and reflects the extent of details in firms' annual reports. Conceptually, DQ differs from existing disclosure measures in that it captures the "fineness" of data and is based on a comprehensive set of accounting line items in annual reports. Unlike existing measures, which are usually applicable for a subset of firms or are based on a subset of information items, DQ can be generated for the universe of Compustat industrial firms. We conduct three sets of validation tests by examining DQ's association with variables predicted by prior literature to be associated with information quality. DQ is negatively (positively) associated with analyst forecast dispersion (accuracy) and negatively associated with bid-ask spreads and cost of equity. These associations continue to hold after we control for firm fundamentals. Taken together, results from this battery of validation tests are consistent with our measure capturing disclosure quality.
  • Publisher: Chicago: Wiley Subscription Services, Inc
  • Language: English
  • Identifier: ISSN: 0021-8456
    EISSN: 1475-679X
    DOI: 10.1111/1475-679X.12094
    CODEN: JACRBR
  • Source: Alma/SFX Local Collection
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