The change from Financial Accounting Standard No. 8 to Financial Accounting Standard No. 52 and management financing decisions

Scope and method of study. Random Coefficients Regression was used to test for two changes in management financing decisions which many firms believed resulted from the mandatory change in accounting standards for translation of foreign financial statements. A sample of fifty companies was selected from the 150 largest U.S. companies ranked by 1985 foreign sales. The amounts of each sample company's foreign currency denominated long term debt, total long term debt, short term debt, and total debt were obtained from financial statements for the years 1975 through 1986. Random Coefficients Regression was used to test for changes in the ratio of foreign currency denominated long term debt to total long term debt and in the ratio of short term debt to total debt. Contemporaneous interest rates and exchange rates were included in the model to avoid erroneously attributing effects caused by economic conditions to the change in accounting standard.;Findings and conclusions. No significant linear relationship was detected between the change in accounting standard and either the proportion of foreign currency denominated debt or the proportion of short term debt used by the sample companies. The coefficient for the interest rate variable was significant in the test for a change in the denomination of debt. The findings suggest that these financing changes, which firms believed they made in response to Standard No. 8, either were not significant or that the changes made were actually in response to changes in the economic environment.