Do Accounting Standards Matter?

• In Event: Changes in Accounting Standards

Abstract

A fundamental objective of accounting standards is to improve intermediation and reduce information asymmetry between insiders and outsiders. In this paper, we investigate whether the market’s pricing of foreign fixed assets and foreign sales is a function of the disclosure environment. Specifically, we examine whether the FASB’s (1997) regulatory intervention—Statement of Financial Accounting Standards No. 131: Reporting Disaggregated Information about a Business Enterprise and Related Information influence investors’ valuation of foreign fixed assets and foreign sales of U.S. firms. We find strong evidence that foreign fixed assets and foreign sales are significantly positively associated with stock price in the pre-and post-SFAS 131 period. We further find that SFAS 131 has incremental price effect on foreign assets but not with foreign sales. This finding suggests that the disclosure mandated by the FASB’s (1997), enhances disclosure quality related to foreign fixed assets and as a result makes it easier for investors to exercise their ownership rights in an informed basis. That is, foreign sales are more incrementally priced under SFAS No. 14 regime, suggesting that information provided by firms in compliance with SFAS 14 was useful to investors (e.g., Botossan and Stanford 2005). Our results collaborate investment community contention that disaggregated segment data have market benefit. Overall, our results suggest that the pricing of foreign sales and foreign assets varies with import dimensions of the reporting environment (i.e. SFAS 14 and SFAS 131 provide useful information to investor).

Author

• Kingsley O Olibe, Kansas State University