FRS 12: An Inter-Industry Study of its Impact on Share Prices

Juliana Jetty, Jo Danbolt

Research output: Contribution to journalArticlepeer-review


This paper assesses the impact of the publication of FRS No. 12, ‘Provisions, Contingent Liabilities and Contingent Assets’ in 1998 on the share prices of UK companies. Although the standard affects all UK companies (restricting “big bath” provisions), it specifically requires extractive firms to make provisions for abandonment costs at the outset of the project. This additional requirement may cause FRS 12 to have a larger impact on companies in extractive industries compared to other companies. Using event study methodology, we find a positive share price impact on the release of FRS 12 for both extractive and other affected firms, although the abnormal returns are substantially lower for extractive firms. This suggests that, while investors welcomed the increased disclosure requirements, the mandatory requirements set by FRS 12 may be onerous for extractive firms. The abnormal returns were significantly lower for those firms reporting significantly increased provisions after the introduction of the new standard, consistent with the new provision requirements being costly for the companies most directly affected.
Original languageEnglish
Pages (from-to)1-23
Number of pages23
JournalPetroleum Accounting and Financial Management Journal
Issue number3
Publication statusPublished - 2006


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