Enforceable Accounting Rules and Income Measurement by Early 20th Century Railroads

Enforceable Accounting Rules and Income Measurement by Early 20th Century Railroads We investigate the extent to which income measurement by major early 20th‐century U.S. railroads shows evidence of lower income smoothness and increased conservatism following new fixed asset accounting rules issued by the Interstate Commerce Commission (ICC) in 1907 and 1908 and concurrent rate regulation regime shifts. Accounting rules promulgated by the ICC after the Hepburn Act of 1906 are the first accounting rules in U.S. history in which regulators could enforce such rules under federal law to increase compliance. Our samplewide results are more consistent with increased conservatism than with income smoothing. Additional tests indicate these effects are more pronounced for firms subject to more intense rate regulation by the ICC, which suggests that the tie‐in between accounting regulation and product/service market regulation influences how managers respond to new accounting rules. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting Research Wiley

Enforceable Accounting Rules and Income Measurement by Early 20th Century Railroads

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Publisher
Wiley
Copyright
Copyright © 2003 Wiley Subscription Services, Inc., A Wiley Company
ISSN
0021-8456
eISSN
1475-679X
D.O.I.
10.1111/1475-679X.00110
Publisher site
See Article on Publisher Site

Abstract

We investigate the extent to which income measurement by major early 20th‐century U.S. railroads shows evidence of lower income smoothness and increased conservatism following new fixed asset accounting rules issued by the Interstate Commerce Commission (ICC) in 1907 and 1908 and concurrent rate regulation regime shifts. Accounting rules promulgated by the ICC after the Hepburn Act of 1906 are the first accounting rules in U.S. history in which regulators could enforce such rules under federal law to increase compliance. Our samplewide results are more consistent with increased conservatism than with income smoothing. Additional tests indicate these effects are more pronounced for firms subject to more intense rate regulation by the ICC, which suggests that the tie‐in between accounting regulation and product/service market regulation influences how managers respond to new accounting rules.

Journal

Journal of Accounting ResearchWiley

Published: May 1, 2003

References

  • The Conservatism Principle and the Asymmetric Timeliness of Earnings
    Basu, Basu
  • The Origins and Evolution of the Double Account System: An Example of Accounting Innovation
    Edwards, Edwards
  • The Changing Time‐Series Properties of Earnings, Cash Flows and Accruals: Has Financial Reporting Become More Conservative?
    Givoly, Givoly; Hayn, Hayn
  • The Relevance of the Value Relevance Literature for Accounting Standard‐Setting
    Holthausen, Holthausen; Watts, Watts
  • The Impact of Securities Litigation Reform on the Disclosure of Forward‐Looking Information by High Technology Firms
    Johnson, Johnson; Kasznik, Kasznik; Nelson, Nelson
  • Estimating Earnings Response Coefficients: Pooled Versus Firm‐Specific Models
    Teets, Teets; Wasley, Wasley

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