Revenue recognition timing and attributes of reported revenue: The case of software industry's adoption of SOP 91-1.

摘要

In this study I examine how revenue recognition timing affects attributes of reported revenue, using a sample of software companies that adopted Statement of Position (SOP) 91-1 in the early 1990s. I find that early recognition yields more timely revenue information, as evidenced by higher contemporaneous correlation with information impounded in stock returns. However, such early recognition diminishes the extent to which accounts receivable accruals map into future cash flow realizations and decreases the time-series predictability of reported revenue. Overall, my results suggest that early revenue recognition makes reported revenue more timely and hence more relevant, but at the cost of lower reliability and lower time-series predictability.