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NTU Management Review Vol. 35 No. 1 Apr. 2025

Specifically, we test whether auditors in the market are alerted to the potential problems
and thus strengthen audit work, improving the overall financial statement comparability of
all companies in the market (Hypothesis 3). We also examine whether there is a difference
in the improvement of financial statement comparability between KY and non-KY

companies after the case of Pharmally (Hypothesis 4). Finally, we explore whether non-
KY companies having board interlocks with KY companies show different improvement
in financial statement comparability compared to those without such interlocks (Hypothesis

5).

2. Design/Methodology/Approach

The data for this study comes from the Taiwan Economic Journal (TEJ); we apply

quarterly data (at the beginning of each quarter) and exclude the financial industry. We
use the model of De Franco et al. (2011) to measure our main variable, financial statement
comparability. Since the first KY company is not listed in Taiwan until 2010, there are few
KY companies in the early stage. We then set the sample period starting from 2017.

More elaborately, for Hypotheses 1 and 2, the sample period is set from 2017 to
the first quarter of 2022. The experimental and control groups for Hypothesis 1 are KY
companies and non-KY companies, respectively. For Hypothesis 2, the groups are non-KY
companies with and without board interlocks with KY companies and we exclude all KY

companies from the sample. For Hypotheses 3 to 5, considering that the case of Pharmally
occurred in August 2020, to examine its impact on financial statement comparability and
to eliminate other events’ influence, we divide the sample period into two: 2019 to the first
quarter of 2020 (Pre-period) and 2021 to the first quarter of 2022 (Post-period).

The control and experimental groups for Hypothesis 4 are KY companies and non-
KY companies, respectively. For Hypothesis 5, the groups are non-KY companies with and
without board interlocks with KY companies, again excluding all KY companies. Given
that KY companies account for less than one-tenth of publicly traded companies, to avoid

bias due to the small sample size, this study also employs Propensity Score Matching (PSM)
to match KY and non-KY companies for empirical testing.

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