The effect of ASC 606 adoption on value relevance of revenues: Early evidence

Amanda Badger, Siqi Li, Hyungshin Park and Sang Hyun Park

Advances in accounting, 2025, vol. 68, issue C

Abstract: This study examines the effect of adopting the principle-based revenue recognition standard, i.e., ASC 606, on the value relevance of reported revenues. We hand-collect data on the cumulative effects of ASC 606 adoption on retained earnings to identify materially impacted firms. We find that, compared to firms not materially impacted by ASC 606 adoption, the value relevance of reported revenues has improved for firms materially impacted based on long-window tests, while the informativeness of reported revenues has not improved for firms materially impacted based on short-window tests around quarterly earnings announcements. We also find that analysts' revenue forecast revisions have increased incrementally for firms materially impacted by ASC 606 adoption. Overall, our results suggest that ASC 606 adoption has generally increased the value relevance and informativeness of reported revenues.

Keywords: ASC 606; Revenue recognition; Principle-based standards; Value relevance (search for similar items in EconPapers)
JEL-codes: M41 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:advacc:v:68:y:2025:i:c:s0882611024000415

DOI: 10.1016/j.adiac.2024.100770

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