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.
Get full access to this article
View all access options for this article.
References
1.
AICPA.1982. Accounting Trends and Techniques. New York: American Institute of Certified Public Accountants.
2.
AyresF. L.1986. “Characteristics of Firms Electing Early Adoption of SFAS 52”. Journal of Accounting and Economics (June): 143–158.
3.
AyresF. L.RodgersJ. L.. 1993. “Further Evidence on the Impact of SFAS 52 on Analysts' Earnings Forecasts”. Journal of International Financial Management and Accounting, forthcoming.
4.
BallR.1972. “Changes in Accounting Techniques and Stock Prices”. Journal of Accounting Research (Supplement): 1–38.
5.
Bear Stearns & Company. 1982. FASB No. 52 Replaces FASB No. 8: Multinationals' Income Will be Smoother. New York: Bear, Stearns & Co.
6.
BeaverW. H.WolfsonM. A.. 1982. “Foreign Currency Translation in Perfect and Complete Markets”. Journal of Accounting Research (Autumn): 528–550.
7.
ChengA.HopwoodW.McKeownJ.. 1992. “Non-Linearity and Specific Problems in Unexpected Earnings Response Model”. The Accounting Review (July): 579–598.
8.
ChristieA. A.KennelleyM. D.KingJ. W.SchaeferT. F.. 1984. “Testing for Incremental Information Content in the Presence of Collinearity”. Journal of Accounting and Economics (December): 205–218.
9.
CollinsD. W.SalatkaW. K.. 1989. “Noisy Accounting Earnings Signals and Earnings Response Coefficients: The Case of Foreign Currency Accounting.” Working Paper, University of Iowa.
10.
DeAngeloL.1988. “Managerial Competition, Information Costs, and Corporate Governance: The Use of Accounting Performance Measures in Proxy Contests”. Journal of Accounting and Economics (January): 4–46.
11.
FreemanR. N.1987. “The Association Between Accounting Earnings and Security Returns for Large and Small Firms”. Journal of Accounting and Economics (July): 195–228.
12.
FreemanR.TseS.. 1992. “A Nonlinear Model of Security Price Responses to Unexpected Earnings”. Journal of Accounting Research (Autumn): 185–209.
13.
GriffinP. A.1982. “Foreign Exchange Gains and Losses: Impact on Reported Earnings”. Abacus (June): 50–69.
14.
HandJ. R. M.1989. “Did Firms Undertake Debt-Equity Swaps for an Accounting Paper Profit or True Financial Gain?”The Accounting Review (October): 587–623.
15.
HandJ. R. M.1990. “A Test of the Extended Functional Fixation Hypothesis”. The Accounting Review (October): 740–763.
16.
HarrisT. S.OhlsonJ. A.. 1990. “Accounting Disclosures and the Market's Valuation of Oil and Gas Properties: Evaluation of Market Efficiency and Functional Fixation”. The Accounting Review (October): 764–780.
17.
HealyP.1985. “The Effect of Bonus Schemes on Accounting Decisions”. Journal of Accounting and Economics (April): 85–107.
18.
HoustonC. O.1989. “Foreign Currency Translation Research: Review and Synthesis”. Journal of Accounting Literature, 8: 25–48.
19.
JenningsR.1990. “A Note on Interpreting Incremental Information Content”. The Accounting Review (October): 925–932.
20.
KaplanR. S.RollR.. 1972. “Investor Evaluation of Accounting Information: Some Empirical Evidence”. Journal of Business (April): 225–257.
21.
LevB.1989. “On the Usefulness of Earnings and Earnings Research: Lessons and Directions from Two Decades of Empirical Research”. Journal of Accounting Research (Supplement): 153–192.
22.
RonenJ.1979. “The Dual Role of Accounting: A Financial Economic Perspective”. In Handbook of Financial Economics, edited by BickslerJ. L., ed., 415–454. New York: North-Holland Publishing Co.
23.
StevensonF.1987. “New Evidence on LIFO Adoptions: The Effects of More Precise Event Dates”. Journal of Accounting Research (Autumn): 306–316.
24.
TinicS. M.1990. “A Perspective on the Stock Market's Fixation on Accounting Numbers”. The Accounting Review (October): 781–796.
