Does SFAS no. 151 trigger more overproduction?

Chaur Shiuh Young, Chih Wei Peng, Chin Chen Chien, Liu Ching Tsai

Research output: Contribution to journalArticlepeer-review

9 Citations (Scopus)


This study explores whether SFAS No. 151 affects firms' production-level decisions. Although the change from ARB No. 43 (FASB 1953) to SFAS No. 151 (FASB 2004) seems trivial at first glance, using a sample of U.S. manufacturing firms from the Compustat database (SIC 2, 3) for the period 2003-2008, we document that abnormal production costs significantly increased after SFAS No. 151 became effective in 2005. The empirical evidence substantiates our hypothesis that the explicit expensing and reporting of idle facilities, as stipulated in SFAS No. 151, inadvertently further induces opportunism for excess production. Moreover, we find that firms that have limited options to indulge in accruals management, and those that have pressures to boost income, will have higher excess production after the adoption of SFAS No. 151. Supplementary analyses indicate that our results are robust with regard to controlling for sales manipulation, and to alternative explanations for excess production as well as alternative overproduction measures.

Original languageEnglish
Pages (from-to)121-143
Number of pages23
JournalJournal of Management Accounting Research
Issue number1
Publication statusPublished - 2014 Apr

All Science Journal Classification (ASJC) codes

  • Business and International Management
  • Accounting


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