Evidence of the Relationship Between Credit Ratings and Reporting Discontinued Operations
Keywords:
discontinued operations, credit ratings, separately stated items, APB No. 30, SFAS No. 144, ASU 2014-08Abstract
ABSTRACT: To test whether standard setters’ objective of improving the usefulness of the financial statements by enacting ASU 2014-08 was achieved, we compare the relationship between credit ratings and discontinued operations under SFAS No. 144 and ASU 2014-08. If discontinued operations are interpreted by credit ratings agencies as non-recurring, they should have no or low persistence and should be unrelated to credit ratings. We find that the relationship between reported discontinued operations and credit ratings under SFAS No. 144 is significant, the implication being that credit ratings agencies did not perceive discontinued operations as non-recurring. In contrast, the relationship is insignificant under ASU 2014-08, discontinued operations are now viewed as non-recurring and the objective of standard setters was achieved. Our results contribute to extant literature on discontinued operations and the relevance of separately stated or disclosed items.
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