Posted by Shuping Chen, University of Texas at Austin, on Thursday, January 14, 2016
Editor's Note: Shuping Chen is Professor of Accounting at the University of Texas at Austin. This post is based on an article authored by Professor Chen; Bin Miao, Assistant Professor of Accounting at the National Singapore University; and Terry Shevlin, Professor of Accounting at UC Irvine.
In our paper, A New Measure of Disclosure Quality: The Level of Disaggregation of Accounting Data in Annual Reports, recently featured in the Journal of Accounting Research, we develop a new measure of disclosure quality (DQ), which captures the level of disaggregation of accounting line items in firms’ annual reports, with greater disaggregation indicating higher disclosure quality. This measure is based on the premise that more detailed disclosure gives investors and lenders more information for valuation (Fairfield et al., 1996; Jegadeesh and Livnat 2006) and a higher level of disaggregation enhances the credibility of firms’ financial reports (Hirst et al. 2007; D’Souza et al. 2010).