In December 1999, the SEC issued Staff Accounting Bulletin (SAB) 101 to provide guidance for auditors and public companies on recognizing, presenting, and disclosing revenue in financial statements. The FASB, sharing the SEC's concern about revenue recognition and its provision of guidance, issued EITF 99-17 and EITF 99-19. While EITF 99-17 and 99-19 directly addressed only the issues of gross revenue reporting and barter advertising revenue recognition from the perspective of internet companies, the matters discussed in the EITF subsequently served as guidance for revenue-related accounting treatment for virtually all companies. In Korea, Accounting Standard No. 4 was enacted in 2002, requiring that from January 1, 2003 onward, department stores, general trading companies, and other entities with agency-type sales arrangements record only the commission-equivalent amount as revenue. While the application of Accounting Standard No. 4 resulted in no difference in the final net income, it caused a substantial decrease in reported revenue figures. This study, in relation to firms subject to the net method, first investigated the impact on financial statements of firms that changed their revenue recognition basis from the gross method to the net method following the adoption of Accounting Standard No. 4, and second, examined whether there were differences in capital market reactions to firms' revenue following the change from the gross method to the net method. The sample was selected from firms that changed their revenue recognition basis from the gross to the net method under Accounting Standard No. 4, "Revenue Recognition," which was applied from the first fiscal year beginning after December 31, 2002. The sample selection yielded 127 firms that disclosed the effects of net method application in their notes and for which data necessary for the study were available. Descriptive statistical analysis of the sample firms showed that the average decrease in revenue was 53% for department stores and 38% for general trading companies, indicating that the revenue reduction effect from applying the net method was substantial. Empirical analysis of the relationship between revenue and stock prices showed that gross-basis revenue in 2002, prior to the application of the net method, exhibited a significantly positive relationship with firm value. However, after the adoption of the net method in 2003, gross-basis revenue showed no significant relationship with firm value. In contrast, net-basis revenue in 2003 exhibited a significantly positive association with firm value, and the change in revenue due to net method application (i.e., gross revenue minus net revenue) showed a significantly negative relationship with firm value. These findings imply that the market responds to information that reflects economic substance. However, in the period before net revenue information was provided to the market, the market did not independently distinguish between net revenue and gross revenue in its reactions.