2012/07/01 by Carolyn M. Callahan, Rodney E. Smith, Angela Wheeler Spencer · 53 citations
Business, Management and Accounting · #Accounting #Actuarial science #Auditing, Earnings Management, Governance #Balance sheet #Basis point #Business #Capital structure #Consolidation (business) #Corporate Finance and Governance #Cost of capital #Cost of equity #Debt #Economics #Equity (law) #Finance #Financial Reporting and Valuation Research #Financial economics #Interest rate #Microeconomics #Monetary economics #Quarter (Canadian coin) #Sample (material) #Variable (mathematics)
paper · doi:10.2308/accr-10272
published in The Accounting Review 87(4), 1105-1134 (American Accounting Association)
openalex publication_date 2012/07/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/26
ABSTRACT This study examines whether the adoption in 2003 of FASB Interpretation No. 46/R (FIN 46), Consolidation of Variable Interest Entities—An Interpretation of ARB No. 51, changed the cost of capital for affected firms. Using comparative analysis on a broad sample of 11,719 firm-quarter observations for 1,389 firms during the period 1998 through 2005, we find evidence that FIN 46 significantly increased the cost of equity capital for firms with affected variable interest entities (VIEs), an increase of approximately 50 basis points relative to firms reporting no material effect from the standard. Further, firms consolidating these formerly off-balance sheet structures experienced the largest increase. Taken together, these results suggest that FIN 46 reduced the opportunity for firms to use off-balance sheet structures to artificially reduce their cost of capital, a matter of regulatory concern. Data Availability: All data are available from public sources.