We investigate write-downs of assets of oil and gas firms due to the applic
ation of the SEC full-cost ceiling test during the period of the largest de
cline in oil and gas prices since this test was mandated. The correlation b
etween the write-down amounts and contemporaneous returns is statistically
significant, but it is lower than the correlation with lagged returns. This
and other evidence suggests that, although the market perceived that some
of the decline in asset value occurred in the quarter in which the write-do
wn was recorded, much of the share market price adjustment due to this decl
ine occurred earlier. (C) 2000 Elsevier Science B.V. All rights reserved.