Organization capital and financial statement comparability

We examine whether firms with high organizational capital produce more (less) financial statement comparability. We use firm-level data from the U.S. and apply regression analyses to a sample of 56,459 firm-year observations from 1987 to 2019. Organizational capital encompasses the processes, systems, knowledge, culture, and technology of a firm, playing a crucial role in securing competitive advantages, which leads to enhanced profitability and growth prospects. It has been observed that companies rich in organizational capital experience better financial outcomes. However, these companies also face significant agency issues, as both shareholders and crucial employees have stakes in the cash flows generated by organizational capital. We propose that managers of companies with substantial organizational capital tend to produce financial statements that are less comparable. This strategy allows them to obscure the firm's economic performance from shareholders, aiming to retain a larger portion of the cash flows. The discovery that companies modify comparability in reaction to organization processes, culture and business models captures the attention of regulators and policymakers, who highlight the significance of comparability in enhancing the utility of information for users. The findings extend the literature on the effect of organizational capital on accounting choices.