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

44 Pages Posted: 27 Apr 2020 Last revised: 9 Jan 2025

See all articles by Kee H. Chung

Kee H. Chung

State University of New York at Buffalo - School of Management

Chairat Chuwonganant

Kansas State University - Department of Finance

Date Written: December 20, 2019

Abstract

We show that earning announcements are accompanied by larger decreases in the bid-ask spread, the price impact of trades, return volatility, and larger increases in the quoted depth, trading volume, and 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 changed the effect of earnings announcements on the firm’s information and trading environments accordingly. 

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

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

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

Kee H. Chung (Contact Author)

State University of New York at Buffalo - School of Management ( email )

Buffalo, NY 14260
United States
716-645-3262 (Phone)
716-645-3823 (Fax)

HOME PAGE: http://mgt.buffalo.edu/faculty/academic-departments/finance/faculty/kee-chung.html

Chairat Chuwonganant

Kansas State University - Department of Finance ( email )

Manhattan, KS 66506
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
457
Abstract Views
2,035
Rank
129,430
PlumX Metrics