This study examines how cross-firm differences in financial reporting practices affect how peer-firm accounting information is used to evaluate CEO performance. I propose that efficient relative evaluation using accounting performance requires peer firms to have comparable financial reporting systems, allowing boards to reduce the information processing costs associated with differences in firms' financial reporting practices. Supporting this view, when peer selection takes financial reporting comparability into account, I find evidence that the earnings of peer firms with high financial reporting comparability serve as a performance benchmark for determining CEOs' cash compensation. My paper empirically corroborates the substantial anecdotal evidence of the use of peer firms' accounting performance as a significant element in boards' evaluation of CEO performance. JEL Classifications: D8; G3; J33; M41.

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This study examines the impact of cross-firm financial statement comparability on regulatory oversight of accounting quality. Consistent with the notion that comparable accounting systems enhance regulators' ability to identify accounting deviations from financial reporting, we find that the likelihood that the SEC issues a comment letter on 10-K filings that have poor accounting quality increases with financial statement comparability. Further analysis reveals that the regulatory benefits from financial statement comparability are more salient when the SEC faces higher monitoring constraints in filing reviews. Overall, we provide novel evidence suggesting that higher financial statement comparability improves the efficacy of the SEC's oversight of accounting quality by reducing the information costs associated with cross-firm comparisons.

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