Standardization of Accounting Language in Financial Disclosures

Daske uses linguistic methodology and large-scale analysis of textual data to explore whether stakeholder incentives and regulatory interventions can affect the standardization of textual financial reporting data. The level of standardization is a key determinant of in-formation processing costs and thus a prime candidate to explain the efficiency of information reception by users of financial reporting information. Information may therefore need a certain level of standardization to cause transparency. A08 explores this link by studying how the level of standardization affects capital-market outcome measures of transparency.

  • Research Question

    How does a common set of accounting standards affect transparency of financial reporting information through the standardization of accounting language?

  • Motivation

    The level of standardization of accounting language in firms’ annual reports is a key determinant of information processing costs and thus a prime candidate to explain the efficiency of information reception by users of financial reporting information. Information may therefore need a certain level of standardization to cause transparency.

  • Research Program

    In this project we will study how the level of standardization of accounting language in firms’ annual reports affects capital-market outcomes measures of transparency. Using linguistic methodologies and large-scale analyses of textual data, we will first provide evidence over time on the level, variation, and drivers of standardization of accounting terminology in firms’ annual reports published in English, within and across countries. Second, by studying in parallel the use of accounting terminology in annual reports translated into English and in local language, we will be able to empirically assess the role of translation as a channel contributing or hindering the standardization of accounting language in a global context. Third, we will evaluate the implications of changing levels of standardization of accounting terminology on the information processing costs of financial reporting information.

  • Contribution

    Our findings will inform standards setters’ and regulators’ discussions on the standardization of financial reporting.

Participating Institutions

TRR 266‘s main locations are Paderborn University, HU Berlin, and University of Mannheim. All three locations have been centers for accounting and tax research for many years. They are joined by researchers from LMU Munich, Frankfurt School of Finance and Management, WHU – Otto Beisheim School of Management, European School of Management and Technology in Berlin and Goethe University Frankfurt who share the same research agenda.