Revenue Recognition Timing and Attributes of Reported Revenue: The Case of Software Industry's Adoption of Sop 91-1

41 Pages Posted: 13 Oct 2004 Last revised: 6 Sep 2011

See all articles by Yuan Zhang

Yuan Zhang

University of Texas at Dallas

Abstract

I examine how revenue recognition timing affects attributes of reported revenue, using a sample of software firms that adopted Statement of Position 91-1 in the early 1990s. I find early recognition yields more timely revenue information, as evidenced by higher contemporaneous correlation with information impounded in stock returns. However, such early recognition diminishes the extent to which accounts receivable accruals map into future cash flow realizations and lowers the time-series predictability of reported revenue. Overall, the results suggest early revenue recognition makes reported revenue more timely and more relevant, but at the cost of lower reliability and lower time-series predictability.

Keywords: revenue recognition, relevance, timeliness, reliability, time-series predictability

JEL Classification: M41, M44, G12

Suggested Citation

Zhang, Yuan, Revenue Recognition Timing and Attributes of Reported Revenue: The Case of Software Industry's Adoption of Sop 91-1. Journal of Accounting & Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=602603

Yuan Zhang (Contact Author)

University of Texas at Dallas ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

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