The Impact of Standard Setting on Individual Investors: Evidence From SFAS 109

62 Pages Posted: 10 Feb 2018 Last revised: 13 Apr 2020

See all articles by Michelle Hutchens

Michelle Hutchens

University of Illinois

Sonja O. Rego

Indiana University - Kelley School of Business - Department of Accounting

Brian Williams

Indiana University - Kelley School of Business - Department of Accounting

Date Written: February 2020

Abstract

We examine the response of individual investors to firms’ adoptions of SFAS 109–Accounting for Income Taxes. We predict SFAS 109 (as compared to APB 11) provides new decision-useful information, reducing the information disadvantage of individual investors relative to more sophisticated investors. Using monthly individual investor stock holdings data and staggered firm adoptions of SFAS 109, we provide evidence that individual investors increased their holdings in firms more affected by the new accounting standard. The increases are concentrated among less sophisticated individual investors. We further provide evidence that the increased demand among individual investors following SFAS 109 adoption is concentrated in firms with substantive improvements to disclosure and those with a concurrent decrease in analyst forecast dispersion. Our findings highlight the importance of evaluating how improved accounting standards can benefit a key stakeholder of the SEC and FASB: individual investors.

Keywords: SFAS 109, Standard Setting, Individual Investors, Deferred Taxes, Tax Footnote

JEL Classification: G11, M40, M41

Suggested Citation

Hutchens, Michelle and Rego, Sonja O. and Williams, Brian, The Impact of Standard Setting on Individual Investors: Evidence From SFAS 109 (February 2020). Kelley School of Business Research Paper No. 18-13, Available at SSRN: https://ssrn.com/abstract=3114265 or http://dx.doi.org/10.2139/ssrn.3114265

Michelle Hutchens (Contact Author)

University of Illinois ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

Sonja O. Rego

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States
812 855-6356 (Phone)

HOME PAGE: http://kelley.iu.edu/Accounting/faculty/page12887.cfm?ID=33017

Brian Williams

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

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