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

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  • Kumar Sivakumar
  • Gregory Waymire
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    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. Copyright University of Chicago on behalf of the Institute of Professional Accounting, 2003.

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Journal of Accounting Research.

    Volume (Year): 41 (2003)
    Issue (Month): 2 (05)
    Pages: 397-432

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    Handle: RePEc:bla:joares:v:41:y:2003:i:2:p:397-432

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    Cited by:
    1. Juan Manuel Garcia Lara & Araceli Mora, 2004. "Balance sheet versus earnings conservatism in Europe," European Accounting Review, Taylor & Francis Journals, vol. 13(2), pages 261-292.
    2. Dechow, Patricia & Ge, Weili & Schrand, Catherine, 2010. "Understanding earnings quality: A review of the proxies, their determinants and their consequences," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 344-401, December.
    3. Garry D. Carnegie & Christopher J. Napier, 2012. "Accounting's past, present and future: the unifying power of history," Accounting, Auditing & Accountability Journal, Emerald Group Publishing, vol. 25(2), pages 328-369, February.
    4. Bushee, Brian J. & Leuz, Christian, 2005. "Economic consequences of SEC disclosure regulation: evidence from the OTC bulletin board," Journal of Accounting and Economics, Elsevier, vol. 39(2), pages 233-264, June.
    5. Chi, Wuchun & Wang, Chenchin, 2010. "Accounting conservatism in a setting of Information Asymmetry between majority and minority shareholders," The International Journal of Accounting, Elsevier, vol. 45(4), pages 465-489, December.

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