Revenue Recognition Comparability and Analysts’ Disclosure Processing Costs

I examine whether the FASB’s revenue recognition guidance under ASC 606 influences revenue comparability across firms and industries, and whether revenue comparability provides decision-useful information to analysts through reduced disclosure processing costs. I extract firms’ revenue policy disclosures from 10-K filings to measure the textual similarity of these disclosures and compare revenue policies across firms and industries. I find an increase in revenue comparability for firms in different industries with similar revenue-generating transactions upon adoption of ASC 606. In contrast, I find a decrease in revenue comparability for firms in the same industry with similar revenue-generating transactions. Further, though I find that analysts are more likely to forecast revenues when firms have higher revenue comparability, this consequence of revenue comparability is less pronounced as firms transition to ASC 606. This finding suggests the ASC 606-related changes to revenue comparability impose disclosure processing costs on analysts