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The Economic Consequences of the Statement of Financial Accounting Standards (SFAS) No. 150

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  • Richard Schroeder
  • Suzanne Sevin
  • David Schauer

Abstract

SFAS No. 150, “Accounting For Certain Financial Instruments with Characteristics of Both Liabilities and Equity” (SFAS 150), requires companies to report mandatorily redeemable preferred stock (MRPS) as a liability, and the dividends on these securities as interest expense. The purpose of this study is to examine the economic consequences of SFAS 150’s adoption on a sample of public companies. Our analysis indicates that adoption resulted in both intended and possible unintended economic consequences. Specifically: (1) the impact of SFAS 150 on non-public companies caused the FASB to review its position on the disclosures concerning MRPS; (2) some companies redeemed their MRPS prior to the adoption date of the standard; and (3) approximately 4% of sample firms were required to disclose MRPS as a liability. Copyright Springer 2006

Suggested Citation

  • Richard Schroeder & Suzanne Sevin & David Schauer, 2006. "The Economic Consequences of the Statement of Financial Accounting Standards (SFAS) No. 150," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 12(4), pages 498-504, November.
    • Handle: RePEc:kap:iaecre:v:12:y:2006:i:4:p:498-504:10.1007/s11294-006-9044-0
    DOI: 10.1007/s11294-006-9044-0
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    References listed on IDEAS

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    1. Rubinstein, Mark E, 1973. "A Mean-Variance Synthesis of Corporate Financial Theory," Journal of Finance, American Finance Association, vol. 28(1), pages 167-181, March.
    2. Dechow, PM & Hutton, AP & Sloan, RG, 1996. "Economic consequences of accounting for stock-based compensation," Journal of Accounting Research, Wiley Blackwell, vol. 34, pages 1-20.
    3. Wayne Guay & Richard Sloan, 2003. "Accounting for Employee Stock Options," American Economic Review, American Economic Association, vol. 93(2), pages 405-409, May.
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    Cited by:

    1. Dean Hanlon, 2019. "Mandatory accounting change and debt covenant violation: Additional evidence from SFAS 150," Australian Journal of Management, Australian School of Business, vol. 44(3), pages 355-387, August.

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