Effects of<span> </span>the New Revenue Recognition Standard (ASC 606) on the Informativeness of Earnings and Revenues<span></span>

Chung, Kee H.; Chuwonganant, Chairat

doi:10.2139/ssrn.3508041

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Effects of the New Revenue Recognition Standard (ASC 606) on the Informativeness of Earnings and Revenues

33 Pages Posted: 27 Apr 2020 Last revised: 27 Nov 2025

See all articles by Kee H. Chung

Kee H. Chung

State University of New York at Buffalo - School of Management; University at Buffalo

Chairat Chuwonganant

Kansas State University - Department of Finance

Date Written: December 20, 2019

Abstract

We show that earnings announcements are accompanied by larger decreases in the bid-ask spread and the price impact of trades, and a larger increase in price efficiency after implementing the new revenue recognition standard (ASC 606). The implementation of ASC 606 is associated with a significant increase in the accuracy of analysts’ revenue and earnings forecasts and a decrease in the post-earnings announcement drift (PEAD). These results indicate that ASC 606 has improved the informativeness of earnings and altered the effect of earnings announcements on the firm’s information and trading environments.

Keywords: Liquidity, Information asymmetry, Revenue recognition standard, ASC 606, Earnings announcements, Earnings informativeness

JEL Classification: G10, G14, G18, M41, M48

Suggested Citation: Suggested Citation

Chung, Kee H. and Chuwonganant, Chairat, Effects of the New Revenue Recognition Standard (ASC 606) on the Informativeness of Earnings and Revenues (December 20, 2019). Available at SSRN: https://ssrn.com/abstract=3508041 or http://dx.doi.org/10.2139/ssrn.3508041