Review of Accounting Studies

, Volume 23, Issue 1, pp 347–383 | Cite as

Financial reporting changes and the internal information environment: Evidence from SFAS 142

  • Qiang Cheng
  • Young Jun Cho
  • Holly Yang


Using the adoption of SFAS 142 as an exogenous shock, we examine the effect of changes in financial reporting on firms’ internal information environment. We argue that complying with SFAS 142 induces managers to acquire new information and therefore improves their information sets. Interviews with executives and auditors confirm this argument. Using a difference-in-differences design, we find that firms affected by SFAS 142 (i.e., treatment firms) experience an improvement in management forecast accuracy in the post-SFAS 142 period. The increase is smaller for those with stronger monitoring in the pre-SFAS 142 period and greater for those with a higher likelihood of goodwill impairment. Furthermore, treatment firms with improvements in management forecast accuracy have higher M&A quality, internal capital allocation efficiency, and performance in the post-SFAS142 period. Overall, our findings indicate that changes in external financial reporting can lead to better corporate decisions via their impact on the internal information environment.


Financial reporting changes Internal information environment SFAS 142 Investment 

JEL classifications

G34 M40 M48 



We thank Patty Dechow (editor), Sandip Dhole, Mark Evans, Gerald Lobo, Shuqing Luo, Mary Jane Rabier, Sugata Roychowdhury, Stephen Stubben, Terry Warfield, two anonymous referees, and workshop and conference participants from Hong Kong University of Science and Technology, INSEAD, National Taiwan University, Singapore Management University, University of Melbourne, University of Wisconsin-Madison, 2014 AAA Annual Meeting, 2014 SMU SOAR Symposium, 2015 FARS Mid-year Meeting, 2015 EAA Annual Congress, and 2015 CAAA Conference for helpful comments, and Dengqjin Zheng and Wei Ting Loh for research assistance. We thank financial support from the School of Accountancy Research Center (SOAR) at Singapore Management University. The authors gratefully acknowledge funding from the Lee Kong Chian Fellowship.

Supplementary material

11142_2017_9437_MOESM1_ESM.docx (28 kb)
ESM 1 (DOCX 28 kb)


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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Singapore Management UniversitySingaporeSingapore

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