This paper examines the consequences of adopting ASC 606, a new revenue recognition standard, on revenue uncertainty and debt contracting, using a quasi-natural experiment surrounding its adoption. We find that affected firms experience an increase in revenue uncertainty, as indicated by both higher analyst forecast dispersion and absolute analyst forecast error. Consequently, the cost of debt rises for affected firms, as covenants are used less in debt contracts reflecting a decreased effectiveness of earnings-based covenants. The effect is mitigated by relationship lending. We also show that the decreased use of earnings-based covenants as well as the increased cost of debt dissipate over time, while the increase in revenue uncertainty persists. Our analyses document a costly transition toward a more principles-based accounting standard but also suggest that some costs are transient.

Using news text from The Wall Street Journal and macroeconomic disclosures in 10-K filings, we address the challenge of characterizing both time-varying aggregate risks and firm-level risk exposures. We develop a disclosure-based measure of systematic risk that (1) reveals salient macro risks in each period, (2) provides a text-based estimate of earnings exposure to these risks, and (3) explains the cross-section of stock returns. We also show that macro disclosures are pervasive across the annual report, grow over time, vary with the business cycle, and exhibit within-firm variation, consistent with the time-varying nature of systematic risk exposure. Overall, disclosures yield transparent and economically interpretable estimates of firm-level systematic risk. Data Availability: Data are obtained from SEC filings, Bureau of Economic Analysis, The Wall Street Journal, Compustat, CRSP, I/B/E/S.