Principles-based versus Rules-based Standards and the Value Relevance of Accounting Data: Evidence from Advertising Barter Sales

Mark P. Bauman
University of Wisconsin–Milwaukee

Somnath Das
University of Illinois at Chicago

Abstract: This study compares the value relevance of advertising barter sales recognized under APB 29, Accounting for Nonmonetary Transactions, relative to similar transactions recorded under EITF 99-17, Accounting for Advertising Barter Transactions.

The results indicate an inverse relation between price-to-sales (PS) ratios and the amount of barter sales recorded under the more general provisions of APB 29. This is consistent with investors discounting the value relevance of barter sales relative to other sources of revenue. In contrast, we find evidence of a positive relation between PS ratios and the amount of advertising barter sales recognized under the more detailed guidance of EITF 99-17. This change in value relevance is consistent with increased investor confidence in the reliability of barter revenue. The study has implications for future standard setting as it documents a case in which the level of detail in accounting guidance markedly impacts the value relevance of the resulting data.

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