Enforceable Accounting Rules and Income Measurement by Early 20th Century Railroads

59 Pages Posted: 6 May 2002

See all articles by Kumar N. Sivakumar

Kumar N. Sivakumar

Boston University - Department of Accounting

Gregory B. Waymire

Emory University - Department of Accounting

Date Written: April 16, 2002

Abstract

We investigate the extent to which income measurement by major early 20th century U.S. railroads shows evidence of reduced income smoothing and increased conservatism following new fixed asset accounting rules issued by the Interstate Commerce Commission (ICC) in 1907 and 1908 and concurrent rate regulation regime shifts. Accounting rules promulgated by the ICC after the Hepburn Act of 1906 are the first accounting rules in U.S. history where regulators could enforce such rules under federal law through penalties of fine and imprisonment to insure compliance. Our sample-wide results are more consistent with increased conservatism rather than income smoothing. Additional tests indicate these effects are more pronounced for firms subject to more intense rate regulation by the ICC, which suggests that the tie-in between accounting regulation and product/service market regulation influences the nature of economic effects associated with accounting regulation.

Keywords: railroads, income measurement, accounting rules, regulation, conservatism, income smoothing, early 20th century financial reporting

JEL Classification: G18, M40, M41, M43, N22, N42

Suggested Citation

Sivakumar, Kumar N. and Waymire, Gregory B., Enforceable Accounting Rules and Income Measurement by Early 20th Century Railroads (April 16, 2002). Available at SSRN: https://ssrn.com/abstract=308602 or http://dx.doi.org/10.2139/ssrn.308602

Kumar N. Sivakumar (Contact Author)

Boston University - Department of Accounting ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States
617-353-2035 (Phone)
617-353-6667 (Fax)

Gregory B. Waymire

Emory University - Department of Accounting ( email )

Goizueta Business School
1300 Clifton Road
Atlanta, GA 30322
United States
404-727-6589 (Phone)
404-727-6313 (Fax)

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