Modeling the Early Adoption Decision: The Case of SFAS 96

Abstract

This study investigates whether management's choices of adoption timing and transition method are associated with factors influencing their economic incentives in the case of early adoption of Statement of Financial Accounting Standards No. 96 (SFAS 96), Accounting for Income Taxes. SFAS 96 provides an interesting setting for this model because firms needed to make a choice of not only whether to adopt the standard earlier than required, but also of the transition method (cumulative effect versus retroactive restatement). The results support the political cost hypothesis and the debt and compensation contract hypotheses for both the early adoption decision as well as the transition method choice decision. The results also indicate the superiority of the interactive effects models thus confirming the results of Ali and Kumar (1994).

Citation

Gujarathi, M.R. and Hoskin, R.E. (2003), "Modeling the Early Adoption Decision: The Case of SFAS 96", Review of Accounting and Finance, Vol. 2 No. 4, pp. 63-86. https://doi.org/10.1108/eb043392