Location of Repository

Financial Instruments Disclosure: The Role of Accounting Standards

By Liafisu Sina Yekini

Abstract

A significant number of studies have pointed to inadequate disclosure of the hedging process by companies of both details of instruments used and the clarity of information. Following the adoption of IFRSs, UK companies started reporting under IAS 32 and 39 from the accounting year beginning from 1st January 2005. This required more relevant information to be disclosed when compared with the requirements of FRS 13 under which UK companies reported prior to 2005. The adoption was consistent with reporting practices of other countries within the EU. \ud This study investigates the extent to which non-financial sector firms in the UK have complied with the requirements of IAS 32 and 39 and what the value of this disclosure has been to investors. The thesis reports on a sample of 182 firms using content analysis to evaluate reporting level in comparison with the requirements of the standards. The thesis also uses cross sectional analysis of the market model to assess the extent of disclosure on excess returns. \ud The findings show that companies reported more on derivative use under the international standards than under UK GAAP, suggesting that harmonization of reporting practices are on course in the UK. Secondly, companies that reported financial instruments under these standards have a lower risk-adjusted discount rate. This translates to lower future returns and higher current prices, meaning current increased market values. Further division of companies into those who disclosed at low, medium and high levels, shows that companies that disclosed at medium and high levels have a lower risk-adjusted discount rates. This suggests reduced risk and higher current market values for these firms. These findings supports our earlier findings just as they support the theoretical insight that increased disclosure means increased transparency that should positively affect firm value and vice versa

Publisher: University of Leicester
Year: 2011
OAI identifier: oai:lra.le.ac.uk:2381/9906

Suggested articles

Preview

Citations

  1. (1996). 1995 Wharton Survey of derivative usage by US non-financial firms.
  2. (1998). 1998 Wharton Survey of derivative usage by US non-financial firms.
  3. (2000). A comparative study of accounting education and certification in South Asia",
  4. (1984). A comparison of Alternative Testing Methodologies Used in Capital Market Research."
  5. (2006). A Firm-Specific Analysis of the Exchange-Rate Exposure of Dutch Firms, in:
  6. (1994). A framework for risk management",
  7. (2001). A Matter of Trust, Canadian Business,
  8. (1973). A Note on the Market Model and the Two-Parameter Model."
  9. (2000). A survey into the use of derivatives by large non-financial firms operating in Belgium’’,
  10. (1990). A Synthesis of Alternative Testing Procedures for Event Studies."
  11. (2006). A two-factor model for stochastic mortality with parameter uncertainty.
  12. (1994). Accounting earnings and cash flows as measures of firm performance; the role of accounting accruals'.
  13. (1985). Accounting Earnings and Security Valuation: Empirical Evidence of the Fundamental Links."
  14. (2004). Accounting for derivatives: An Evaluation of Reporting Practice by UK banks’
  15. (2003). Accounting for derivatives: how the accounting standards stack up.
  16. (2007). Accounting for financial instruments: An analysis of the determinants of disclosure in Portuguese stock exchange’,
  17. (2001). Accounting information and analysts stock recommendation decisions: A content analysis approach.
  18. (2002). Achieving international harmonisation through accounting policy choice”, paper presented at the AAANZ Conference,
  19. (1998). Agency costs of Corporate Risk
  20. (1986). Agency costs of Free cash-flow, Corporate Finance and take-overs’,
  21. (1980). Agency Problems and the theory of the Firm,’
  22. (1988). Agency theory, employee stock ownership and a firm's cost of equity capita!’. Unpublished working paper,
  23. (2007). An Analysis of The Comparative predictive Abilities of Operating Cash Flows, Earnings, And Sales’
  24. (1984). An Econometric Analysis of the Choice of Daily Versus Monthly Returns In Tests of Information Content,"
  25. (1996). An empirical analysis of the economic implications of fair value accounting for investment securities.
  26. (1981). An income strategy approach to the positive theory of accounting standard setting/choice.
  27. (1973). An inter-temporal capital asset pricing model’,
  28. (1997). An international comparison of derivatives use,
  29. and Plenborg T.(2008) ‘Value Relevance of voluntary Disclosure in the Annual Report’.
  30. (1992). Annual and Quarterly Financial Data: Accuracy of Investment Decision,”
  31. (1998). Are CEO’s Really Paid like
  32. (1995). Are Corporations Managing or Taking Risks with Derivatives?” Unpublished paper, William E. Simon Graduate
  33. (2006). Are Firms Successful at Selective Hedging?
  34. (2002). Asymmetric information and corporate derivatives use,’
  35. (1982). Bottom-line Compliance” with the IASC: A Comparative Analysis’
  36. (1997). Changes in the value-relevance of earnings and book values over the past forty years.
  37. (2006). Chapter 3: Accounting Standards – Development and issues in IAS 32 and 39 3.1. Accounting Standards – History of development
  38. (1989). Collection of information about publicly traded firms: theory and evidence.
  39. (2001). Commentary on essays on disclosure.
  40. (1969). Content analysis for the social sciences and humanities,
  41. (2004). Content analysis: An introduction to its methodology (2nd ed.). Thousand Oaks,
  42. (1980). Content Analysis: An Introduction to its Methodology. Sage,
  43. (2004). Corporate data and future cash flows'.
  44. (1996). Corporate disclosure policy and analyst behaviour."
  45. (2002). Corporate Disclosure Policy and the Informativeness of Stock Prices” Review of Accounting Studies,
  46. (2002). Corporate diversification: what gets discounted?’ The journal of Finance Vol.
  47. (2001). Corporate Finance.
  48. (1991). Corporate financial hedging with proprietary information.
  49. (1997). Corporate governance, lessons from
  50. (1995). Corporate incentives for hedging and hedge accounting,
  51. (1987). Corporate Insurance and the under investment Problem’
  52. (1999). Corporate ownership around the World”,
  53. (1961). Corporate Reporting and Investment Decisions (University of
  54. (2002). Corporate Risk Management- Costs and Benefits’.
  55. (1997). Craig “Event Studies in Economics and Finance.”
  56. (1998). Creating shareholder value 2nd ed.
  57. (1999). Credit flow, risk, and the role of private debt in capital structure, Working paper, Federal Reserve Board Carter,
  58. (1993). Cross-sectional determinants of analysts ratings of corporate disclosures.
  59. (1998). Currency and interest-rate derivatives use in US firms’’,
  60. (1988). Debt/Equity ratios and expected common stock returns: Empirical evidence,
  61. (2006). Derivative usage by non-financial firms in Sweden
  62. (1995). derivatives practices and instruments survey.
  63. (2001). Derivatives usage in UK non-financial listed companies’. The European journal of Finance,
  64. (1997). Determinants of corporate hedging and derivatives: a revisit",
  65. (1989). Determinants of the corporate decision to disclose social information.
  66. (2006). Disclosure harmonization of accounting practices: The case of South Asia’,
  67. (1997). Disclosure level and the cost of equity capital,
  68. (1985). Disclosure of non-proprietary information.
  69. (1983). Discretionary Disclosure."
  70. (2001). Dividend Policy and New Equity Financing. Stanford University, Unpublished working paper.
  71. (1985). Dividend policy under Asymmetric information.
  72. (1959). Dividends, Earnings and Stock Prices.
  73. (2008). Do auditing standards improve the accounting disclosure and information environment of public companies? Evidence from the emerging markets in China.
  74. (1989). Eclipse of the Public Corporation’, Harvard Business School; Social Science Electronic Publishing,
  75. (2004). Econometrics of event studies". Working paper, Tuck School of Business at
  76. (1998). Economic imperialism and the crisis in financial accounting research.
  77. (1978). Economic incentives in budgetary control systems’
  78. (1999). Effect of SEC financial reporting release No 48 on derivative and market risk disclosures.
  79. (1991). Efficient capital markets: II”.
  80. (1988). Efficient Signalling with Dividends, Investments and Stock Repurchases.
  81. (1981). Efficient tests for normality, hetroscedasticity and serial independence of regression residuals: Monte Carlo evidence.
  82. (1985). Empirical evidence of incentive problems and their mitigation in oil and gas shelter programs. In
  83. (1996). Empirical Evidence on the Corporate Use of derivatives,
  84. (2002). Enterprise Risk Management: The Case of United Grain Growers,
  85. (1997). Environmental legislation and environmental disclosure: Some evidence from New Zealand. Asian Review of Accounting,
  86. (1997). Event Studies in Economics and Finance’,
  87. (1986). Event study methodologies and the size effect: The case of UK press recommendations.
  88. (1990). Evidence that stock prices do not fully reflect the implications of current earnings for future earnings.
  89. (2001). Exchange Rate Exposure, Hedging, and the Use of Foreign Currency Derivatives,”
  90. (2005). Expected Returns, Yield Spreads, and Asset Pricing Tests, working paper
  91. (1977). Exploratory data analysis. 1 ed.
  92. (1968). Extent of disclosure.
  93. (2007). Financial Accounting Standards Board (FASB),
  94. (2009). Financial Accounting Theory’ McGraw-Hill Australia Pty Limited Deloitte (2008). IASplus.com website. Available at. www.iasplus.com (accessed on 21/10/2010) Deloitte Touch Tohmatsu
  95. (2001). Financial disclosure and accounting harmonization: cases of three listed companies in
  96. (2005). Financial Instruments Accounting Practices. How far are the Portuguese companies from IAS? Working paper,
  97. (1999). Financial reporting of derivatives before FRS 13’, Derivative Use, Trading and Regulation,
  98. (1976). Financial reporting Practices: Disclosure and Comprehensiveness in an International Setting’
  99. (2007). Firms’ histories and their capital structures,”
  100. (1972). Forging Accounting Principles in Five Countries: A History and an Analysis of Trends,
  101. (2003). Foundations of Corporate Finance’, SouthWestern College Pub; 2 edition
  102. (1974). Free Riders and Collective Action: An Appendix to Theories of Economic Regulation.
  103. (1993). Fundamental information analysis.’
  104. (1992). Futures and Options." Pp. 85-110 in Markets and Dealers: The Economics of the London Financial Markets, edited by David Cobham.
  105. (1989). Global surveys of corporate disclosure practices and audit firms: a review essay",
  106. (1982). Growth, Beta and Agency Costs as Determinants of Dividend Payout
  107. (2008). Hedging failure in Mitchells and Butlers: M & B Chairman sorry for £391m hedging failure’, 01 February,
  108. (2004). Hedging foreign exchange exposure: Risk reduction from transaction and translation hedging.
  109. (2005). Hedging or Market Timing? Selecting the Interest Rate Exposure of Corporate Debt,
  110. (1995). Hedging, leverage, and primitive risk’
  111. (2000). How Big Are the Tax Benefits of Debt?
  112. (2005). IAS 39 Financial Instruments: Recognition and Measurement.
  113. (1979). Imperfect Information, Dividend Policy, and “The Bird in the Hand” Fallacy.
  114. (2003). Incentives versus standards: properties of accounting in four East Asian countries,
  115. (1999). Inefficiency in analysts' earnings forecasts: Systematic misreaction or systematic optimism?
  116. (1981). Information aggregation in a Noisy Rational Expectations Economy’,
  117. (2002). Information asymmetry in disclosure of foreign exchange risk management: can regulation be effective?’
  118. (2001). Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature’
  119. (1996). International accounting harmonization and the major developed stock market countries: an empirical study",
  120. (1998). International Accounting Standards Committee IASC
  121. (1997). International Accounting Standards Committee IASC.
  122. (2004). International GAAPs 2005: Generally Accepted Accounting Practice under International Financial Reporting Standards.
  123. (1994). International multinational accounting.
  124. (1977). Investment Performance of Common Stocks in Relation to their Price-Earnings Ratios: A Test of the Efficient Market Hypothesis.
  125. (2010). Issues affecting the development of an international accounting standard on financial instruments.
  126. (1994). Lack of Timeliness and Noise as Explanations for the Low Contemporaneous Return-Earnings Association,”
  127. (1997). Large UK companies and derivatives’,
  128. (2000). Learning from experience’. Accountancy,
  129. (1999). Leverage ratios, Industry norms, and Stock Price reaction: An Empirical Investigation of Stock-for –Debt Transactions.
  130. (1984). Lobbying of Accounting Standard-setting Bodies in the UK and the USA: A Downsian Analysis”, Accounting,
  131. (1988). Managerial competition, information costs, and corporate governance: the use of accounting performance measures in proxy contests’.
  132. (1986). Managerial incentives and capital management.
  133. (1996). Managerial motives and corporate use of derivatives: some evidence,
  134. (1998). Market efficiency, long-term returns, and behavioral finance.
  135. (2001). Measurement of harmony of financial reporting within and between countries: the case of the Nordic countries",
  136. (1988). Measuring harmonisation of financial reporting practice",
  137. (1997). Measuring long-horizon security price performance,
  138. (1985). Measuring the effects of regulation with stock price data’ The RAND
  139. (1990). Miriam Dornstein: Boards of Directors under Public Ownership."
  140. (1992). Modelling Abnormal Returns: A Review Article."
  141. (1956). Nonparametric statistics for the behavioral sciences.
  142. (1990). On corporate demand for insurance: Evidence from the reinsurance market.
  143. (1990). On Financial Disclosure and the Behaviour of Security Prices."
  144. (1987). On Multivariate Tests of the CAPM.”
  145. (1993). On the determinants of corporate hedging’
  146. (1984). On the Existence of an Optimal Capital Structure: Theory and Evidence.
  147. (1946). On the theory of scales of measurement’
  148. (1989). On the Usefulness of Earnings and Earnings Research: Lessons and Directions from Two Decades of Empirical Research."
  149. (1983). Organization Theory and Methodology.
  150. (1985). Persuasive evidence of market inefficiency,
  151. (1993). Playing against (with?) the devil: Managing Financial risks for Better Corporate return,’
  152. (1986). Positive Accounting Theory (Englewood Cliffs:
  153. (2002). Positive Accounting Theory, Political Costs, and Social Disclosure Analysis; a Critical Look”,
  154. (1985). Pricing Capital Assets in an International Setting: An Introduction,"
  155. (1997). Proposed accounting for derivatives: Does it address the concerns of current accounting?
  156. (1984). Qualified Audit Opinions and Stock Prices: Information Content, Announcement Dates, and Concurrent Disclosures',
  157. (1997). Quantitative methods in finance
  158. (1980). Raising finance and firms corporate reporting policies,
  159. (2000). Real Options, a Practitioner's Guide, TEXERE LLC,
  160. (1996). Rethinking Risk Management.
  161. (1993). Risk management: coordinating corporate investment and financing policies’,
  162. (2001). Risk Managers Cover Enterprise Exposure,
  163. (1973). Risk, return and equilibrium: Empirical tests,
  164. (1987). Robustness of the two independent samples t-test when applied to ordinal scaled data.
  165. (1996). Rogue Trader, Little Brown and Company,
  166. (1991). Security returns around earnings announcements.
  167. (1974). Selected Items of Information and their Disclosure in Annual Reports’, The Accounting Review,
  168. (1983). Separation of ownership and control.
  169. (1976). Setting Accounting Standards in 1980, ‘unpublished speech before the Arthur Young Professors Roundtable p 30 -32’ Howieson,
  170. (1995). Should firms use derivatives to manage risk?’ In:
  171. (2000). Stock Returns and Accounting Earnings.” Forthcoming,
  172. (2000). Stockholder, manager, and creditor interests: application of agency theory.
  173. (1969). the Adjustment Stock Prices of New Information”,
  174. (1988). The appropriateness of some common procedures for testing the equality of two independent binomial populations.
  175. (1997). The conservatism principle and the asymmetric timeliness of earnings.
  176. (1958). The cost of capital, Corporation finance, and the theory of investment,
  177. (1977). The Cost of Retained Earnings – A Comment.
  178. (1992). The Cross-Section of Expected Stock Return’
  179. (1979). The demand for and supply of accounting theories: The market for excuses. The Accounting Review.
  180. (1985). The determinants of firms' hedging policies’,
  181. (2002). The Determinants of Selective Exchange Risk Management – Evidence from German Non-Financial Corporations,
  182. (1995). The determinants of voluntary financial disclosure by Swiss listed companies.
  183. (1997). The Econometrics of Financial Markets.
  184. (2000). The Economic Consequences of Increased Disclosure.
  185. (1973). The economic theory of agency; the principal's problem’.
  186. (1985). The effect of bonus schemes on accounting decisions.
  187. (2006). The effects of derivatives on firm risk and value", Working paper,
  188. (1979). The extent and Causes of Voluntary Disclosure of Financial information in Three European Capital Market: An Exploratory Study: Doctoral Dissertation, graduate School of Management,
  189. (2003). The impact of institutional differences on derivatives usage: A comparative study of US and Dutch firms’’,
  190. (1985). The impact of long-range managerial compensation plan on shareholder wealth,
  191. (2003). The Impact of Voluntary Corporate Disclosures on the Ex Ante Cost of Capital for Swiss Firms.
  192. (2005). The Importance of Accounting Discretion in Mandatory Accounting Changes: An Examination of the Adoption of SFAS
  193. (1987). The incremental information content of accrual versus cash flows.
  194. (1990). The incremental information content of cash-flow components.
  195. (1978). The Incremental Information Content of the 10-K,” The Accounting Review
  196. (1988). The Influence of Estimation Period News Events on Standardized Market Model Prediction Errors’ The Accounting Review 63: 448
  197. (2004). The information content and timeliness of fair value accounting: an examination of goodwill write-offs before, during and after implementation of SFAS 142",
  198. (1968). The Information Content of Annual Earnings Announcement’
  199. (2001). The information content of earnings and turnover announcements in France",
  200. (1999). The Information Content of Funds From Operations (FFO) for Real Estate Investment Trusts (REITs).
  201. (2004). The introduction of derivatives reporting g in the UK: A content analysis of FRS 13 disclosures’,
  202. (2002). The Ludwig Report: implications for corporate governance’, Corporate Governance: The international
  203. (1991). The Market Reaction to 10-K and 10-Q Filings and to Subsequent. The Wall Street Journal Earnings Announcements,” The Accounting Review
  204. (1989). The nature and amount of information in cash flows and accruals’.
  205. (2000). The relation between analysts’ forecasts of long-term earnings growth and stock price performance following equity offerings.
  206. (1953). The Relation between retained earnings and common stock prices for large, listed corporations,’
  207. (1998). The relations between eamings and cash flow'.
  208. (1983). The relationship between earnings yield, market value and the return for NYSE common stocks,
  209. The relationship between returns and the market value of common stocks’,
  210. (1986). The relative information content of accruals and cash flows: combined evidence at the earnings announcement and annual report release date.
  211. (2001). The relevance of the value relevance literature for financial accounting standard setting: another view”,
  212. (2001). The Relevance of the Value-Relevance Literature for Financial Accounting Standard Setting.
  213. (1971). The Theory of Regulation’
  214. (1993). The trajectory of corporate financial risk management’
  215. (1998). The underinvestment Problem and Corporate Derivative use’,
  216. (2001). The use of foreign currency derivatives and firm market values.’ Review of financial studies,
  217. (1999). The value relevance of financial statement recognition versus disclosure:
  218. (1974). Theories of economic regulation.
  219. (1978). Towards a Positive Theory of the Determination of Accounting Standards.
  220. (1984). Two Agency-cost explanations of Dividends.
  221. (1998). UK Accounting Disclosure Practices and Information Asymmetry during the First Quarter of the Twentieth Century: The Effects on Book Returns and Dividend Covers’
  222. (2007). Users' participation in the accounting standard-setting process: A theory-building study.
  223. (1985). Using Daily Stock Returns: a case of Event Studies’
  224. (1981). Using Financial Data to Measure Effects of Regulation.’
  225. (2002). Using forecasts of earnings to simultaneously estimate growth and the rate of return on equity investment,’
  226. (1996). Value-Relevance of Nonfinancial Information: The Wireless Communications Industry."
  227. (2000). Voluntary Disclosure and Equity Offerings: Reducing Information Asymmetry or Hyping the Stock? Contemporary Accounting
  228. (2005). Voluntary disclosure, information quality, and costs of capital, Working Paper,
  229. (1987). Voluntary financial disclosure by Mexican Corporations,
  230. (2006). Who times the Foreign Exchange Market? Corporate Speculation and CEO Characteristics.
  231. (1998). Why do firms hedge? An asymmetric information model,
  232. (1997). Why Firms Use Currency Derivatives,
  233. (1989). World Survey of Published Accounts: An Analysis of 200 Annual Reports from the World’s Leading Companies,

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.