An examination of the market reaction to the adoption of SFAS No.52: A New-Information-de-Facto approach.

摘要

This study develops a new methodology, the New-Information-de-Facto Approach to examine the market reaction to the differential income from the accounting change of foreign currency translation. The main enhancement of this approach lies in the advocated analyses on the timely quarter when an accounting change occurs. Previous studies using the lump-sum annual impact apparently mis-specify the explanatory variables. Closely combining the information about SFAS No.52 from The Wall Street Journal and financial analyst's forecast (Value Line), this study shows that the differential income from adopting this new promulgation has information content. Specifically, this study accumulates CAR's from the Value Line quarterly earnings forecast date to the WSJ quarterly earnings-announcement date for the quarter a company made the accounting change of SFAS No.52. CAR's thus cumulated are found to be significantly correlated with the quarterly earnings signal as well as income impact signals from the adoption of SFAS No.52. This information-content argument for SFAS No.52 is further verified by different groups based on the information disclosed in the WSJ. The methodology designed in this study can be generally applicable to subsequent studies on the market reaction to the differential income from accounting changes.