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Examination of firm performance following the early adoption of SFAS 142

Lei Han (Department of Accounting, Niagara University, Niagara University, New York, USA)
Daniel F. Hsiao (Department of Accounting, Labovitz School of Business and Economics, University of Minnesota-Duluth, Duluth, Minnesota, USA)

International Journal of Accounting & Information Management

ISSN: 1834-7649

Article publication date: 2 May 2017




The purpose of this study is to investigate the long-term performance of firms that early adopted Statement of Financial Accounting Standard 142 (SFAS 142).


In particular, the paper focuses on a relatively lengthy time frame after the standard became effective in 2002 and examines whether the firms which early adopted SFAS 142 exhibit different characteristics from their non-early adopting counterparts when comparing operating returns, stock returns and earnings quality over the same time period. Profit margin, return on assets and return on equity are used to measure operating returns; buy-and-hold return, Tobin’s Q and price-to-book ratio are used to measure stock returns; and abnormal accruals and accruals quality are used to measure earnings quality.


Based on a sample of 692 firm-year observations over five years between 2002 and 2006, the authors find that early adopters tend to exhibit lower operating performance (most noticeable when measuring profit margin and return on assets) and lower earnings quality following the early adoption of SFAS 142 than non-early adopters. However, little relation is found between post-adoption market returns and the choice to early adopt SFAS 142.

Research limitations/implications

This study helps fill the gap in accounting literature by investigating the long-term performance of firms post adoption of SFAS 142. The empirical results may provide greater understanding of the firms choosing to early adopt SFAS 142, and offer additional insight to guide standard setters on similar accounting issues in the future.


This study’s research questions attempt to identify potential differences in operating and stock performance and earnings quality by comparing early adopters and non-early adopters of SFAS 142 over a five-year period between 2002 and 2006, which extends the research beyond the relatively short window covered by prior research, and also takes into consideration Statement of Financial Accounting Standard 141 (SFAS 141)-R “Business Combination”, issued in 2007, to supersede SFAS 141 of 2001.



Han, L. and Hsiao, D.F. (2017), "Examination of firm performance following the early adoption of SFAS 142", International Journal of Accounting & Information Management, Vol. 25 No. 2, pp. 138-176.



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