The Nature of the Market's Response to the Earnings Effects of Voluntary Changes in Accounting for Foreign Operations

Abstract

This paper provides empirical evidence regarding the market's reaction to firms' reported income effects of early adoption of SFAS No. 52, Foreign Currency Translation. A cross-sectional regression model was utilized to investigate the market reaction to the reported earnings effects of the accounting change for 97 firms that voluntarily adopted SFAS No. 52 in 1981. Evidence presented here suggests that although the change in accounting method increased earnings, the market did not react to the resulting increase in earnings in a positive fashion.