A Market‐Based Examination of Revenue and Liability Recognition: Evidence from the Publishing Industry

Abstract

This study examines the market valuation of the unearned revenue liability reported by a sample of newspaper and magazine publishers. The evidence indicates that stock prices behave as if the unearned revenue liability represents an economic asset overall. It is further shown that the market valuation of the unearned revenue “asset” is increasing in the magnitude of advertising relative to circulation revenue. After controlling for advertising revenue inflows, reported unearned revenue is negatively related to stock price, indicating that the economic asset is valued in part on its liability characteristics. These results have direct implications for the FASB's current deliberations on revenue and liability recognition.