Economic Consequences of Alternative Adoption Rules for New Accounting Standards

Posted: 19 Mar 1997

See all articles by Eli Amir

Eli Amir

Tel Aviv University

Amir Ziv

Columbia Business School


We develop a theoretical framework that explains firms' reactions to new accounting standards, especially, those released by the FASB under its extended adoption policy. Our theory highlights the differences between recognized and disclosed accounting information, and provides a link between firms' adoption strategy and stock price behavior around the adoption announcement. We also consider the relation between delaying information release and renegotiating related contracts. Finally, we analyze the impact of alternative adoption policies allowed by a regulator. We argue that mangers utilize the extended adoption period and strategically choose adoption timing and reporting method to convey to the market their private information about the new standard's financial impact. our model predicts that firm with "favorable" information recognize the impact of the new standard earlier than the mandatory adoption date, firms with "neutral" information disclose the impact in the footnotes to the financial statements, and firms with "unfavorable" information defer reporting until the mandatory adoption date and renegotiate the underlying contract. As a result, a positive market reaction to an early-adoption (recognition) decision is anticipated. In our companion study, Amir and Ziv (1997), obtain results that are consistent with these predictions, using data on SFAS 106 adoption.

JEL Classification: M41, M44, D82

Suggested Citation

Amir, Eli and Ziv, Amir, Economic Consequences of Alternative Adoption Rules for New Accounting Standards. Available at SSRN:

Eli Amir

Tel Aviv University ( email )

312 Recanati Bldg.
69978 Tel Aviv
+972 3 640-8510 (Phone)
+972 3 640-7738 (Fax)

Amir Ziv (Contact Author)

Columbia Business School ( email )

3022 Broadway, 704 Uris
New York, NY 10027 10027
United States
212 854-3485 (Phone)
212 253-4095 (Fax)

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