| This study examined the impact of the ceiling test write-off on the stock prices of affected full cost (FC) oil and gas firms.;To test the research hypotheses, three expectation models were developed: an expectation model for the ceiling test write-off, an expectation model for earnings, and a stock prices expectation model. The results of the sign test are weakly consistent with the hypothesis that the sign of cumulative abnormal residual is negatively associated with the sign of the unexpected amount of the ceiling test write-off, but interpretation is difficult given the evidence of bias in the results. In general, the results of the magnitude tests indicate that the unexpected amount of the ceiling test write-off negatively affects abnormal returns. The results suggest that, on average, security price changes in the test period appeared to be significantly higher than the estimation period. The results of testing the cross-sectional variation in the abnormal returns suggest that the size of the firm, risk of the firm, debt to equity ratio, type of debt, unexpected earnings, and unexpected ceiling test write-off included in the cross-sectional model, appeared to explain a significant proportion of the variation in the abnormal returns.;For FC firms that did not announce their ceiling test write-offs in the WSJ, a cross-sectional regression model was constructed and tested. The results suggest that the unexpected ceiling test write-off expense and the other type of expense jointly do possess incremental information content beyond earnings.;To examine the research question, separate hypotheses were developed and tested (1) for FC firms that announced their ceiling test write-offs first in the Wall Street Journal (WSJ), and (2) research hypotheses for FC firms that did not announce their ceiling test write-offs in the WSJ prior to disclosure of the amount of write-offs in their quarterly financial statements. |
