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April 26, 2026Review of Accounting StudiesOpen Access

ASC 606, revenue uncertainty, and cost of debt: short-term and long-term consequences

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Authors

KLKyungran LeeSLShinWoo LeeGSGil Sadka

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Overview

Quasi-natural experiment shows ASC 606 increases revenue uncertainty and debt costs, suggesting transient effects.

Key Points

  • This research aims to explore the impact of ASC 606 adoption on revenue uncertainty and the cost of debt.
  • Conducted a quasi-natural experiment surrounding the adoption of ASC 606.
  • Analyzed changes in revenue uncertainty through analyst forecast metrics.
  • Evaluated shifts in debt contracting practices, particularly regarding earnings-based covenants.
  • Affected firms showed increased revenue uncertainty, with higher analyst forecast dispersion and absolute forecast error.
  • The cost of debt increased due to decreased effectiveness of earnings-based covenants, evidenced by less frequent use in contracts.
  • While the increased cost of debt and reduced use of covenants dissipated over time, revenue uncertainty remained elevated.

Cite This Study

Lee et al. (2026) studied this question.

synapsesocial.com/papers/69edadd94a46254e215b5730https://doi.org/10.1007/s11142-026-09936-5
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