Firms’ perceived trade policy uncertainty and management’s disclosure strategies: Evidence from financial statement comparability

This study examines the impact of firm-specific trade policy uncertainty (TPU), a type of perceived environmental uncertainty, on management’s financial reporting strategies. We construct a firm-specific measure of TPU by employing bidirectional encoder representations from transformers (BERT), a state-of-the-art deep learning model for natural language processing with human-like text comprehension abilities. Utilizing a sample of Chinese listed companies, our study reveals an inverse correlation between firms' perceived TPU levels and financial statement comparability, attributable to TPU's negative influence on the comparability of discretionary accounting choices. However, in industries characterized by heightened TPU levels, the significant deleterious impact of TPU on comparability disappears, while firms experiencing high TPU still exhibit low-quality reporting practices. Overall, our findings suggest that firms with elevated perceived TPU levels correlate with an increased likelihood of unusual corporate behaviors and strategic reporting decisions, resulting in lower comparability with other normal industry peers.