Do the FASB's Standards Add Shareholder Value?

We examine the cost-effectiveness, from the shareholders' perspective, of the accounting standards issued by the FASB during 1973-2009. In particular, we evaluate (i) the stock market reactions of firms affected by the standards surrounding events that changed the probability of issuance of these standards and (ii) whether the market reactions are related, in the cross-section, to affected firms' agency problems, information asymmetry, proprietary costs, contracting costs, and changes in estimation risk. The average standard is a non-event from the investors' perspective. We find that 104 of the 138 standards we examine are associated with no change in shareholder value. Thirty-four standards are associated with significant abnormal returns. Of these 19 (15) decreased (increased) shareholder value. Thus, a mere 11% of the standards improved shareholder value. The fair value pronouncements (SFAS 105, 107, 115) and the R&D expensing standard (SFAS 2) are associated with the highest negative stock price reactions, whereas standards related to the securitization of mortgage-backed securities (SFAS 134) and the disclosure of derivative instruments (SFAS 119) are associated with the highest positive returns. Surprisingly, 25 standards are associated with an increase in estimation risk. In cross-section, we find that firms with higher levels of information asymmetry, lower contracting costs, and firms that experience a decrease in estimation risk are those that experience most positive returns. Principles-based standards are associated with more positive stock price reactions than rules-based standards are. However, standards that require greater use of managerial estimates are associated with negative stock price reactions