Revisiting the impact of ASC 280: Liquidity, operating performance, and market value

Abstract

The Financial Accounting Standards Board (FASB) enacted Statement of Financial Accounting Standards No. 131 (now Accounting Standards Codification 280) to improve the valuation of firms’ future growth opportunities through changes to segment disclosures. Prior research on foreign investment relies primarily on levels analyses. Using both changes and levels analyses, we provide evidence that investments in foreign fixed assets by US firms is significantly and positively related to operating income and net cash flows from operations. Foreign fixed assets are also significantly and positively related to stock prices, returns, and stock liquidity. Generally, our results suggest that increases in international diversification are related to increased operating performance and liquidity, while our price and returns results suggest that investors incorporate geographic asset data in their valuation models.