The trade-off between risk management and earnings volatility: Evidence from restatements

This study examines whether a change in accounting treatment for derivative instruments used to hedge firms\u27 market risk exposures affects corporate risk-management and if so, which factors increase the likelihood that a change in accounting treatment will affect risk-management. I analyze a sample of firms that restated their financial statements due to the misclassification of economic hedges as accounting hedges, both of which are derivative instruments used to reduce firms\u27 market risk exposures and differ only in accounting treatment. Economic hedges are accounted for under fair value accounting whereas accounting hedges receive hedge accounting treatment, the preferred method because it avoids the increase in earnings volatility associated with fair value accounting. ^ I first examine why certain firms use hedge accounting treatment following the restatement and other firms do not. I find that the type of hedging instrument used, the market risk that was being hedged, and the disclosed reason for the restatement affect the likelihood that firms will apply hedge accounting following the restatement. Firms that do not use hedge accounting following the restatement face a trade-off between continuing the economic hedge which increases earnings volatility, and discontinuing the hedge which avoids the increase in earnings volatility but increases market risk exposure. I find that dividends, tax benefits and firms\u27 historic patterns of reporting positive earnings are associated with the likelihood that firms discontinue economic hedges, increasing market risk exposure. I also find that leverage, growth, distress and analyst following are associated with the likelihood that firms continue economic hedges, maintaining market risk exposure but increasing earnings volatility. This study provides an example of how a change in accounting treatment affects firm behavior and results of this study contribute to our understanding of firm characteristics which influence managers to focus on accounting earnings versus market risk exposure.

The trade-off between risk management and earnings volatility: Evidence from restatements

This study examines whether a change in accounting treatment for derivative instruments used to hedge firms\u27 market risk exposures affects corporate risk-management and if so, which factors increase the likelihood that a change in accounting treatment will affect risk-management. I analyze a sample of firms that restated their financial statements due to the misclassification of economic hedges as accounting hedges, both of which are derivative instruments used to reduce firms\u27 market risk exposures and differ only in accounting treatment. Economic hedges are accounted for under fair value accounting whereas accounting hedges receive hedge accounting treatment, the preferred method because it avoids the increase in earnings volatility associated with fair value accounting. ^ I first examine why certain firms use hedge accounting treatment following the restatement and other firms do not. I find that the type of hedging instrument used, the market risk that was being hedged, and the disclosed reason for the restatement affect the likelihood that firms will apply hedge accounting following the restatement. Firms that do not use hedge accounting following the restatement face a trade-off between continuing the economic hedge which increases earnings volatility, and discontinuing the hedge which avoids the increase in earnings volatility but increases market risk exposure. I find that dividends, tax benefits and firms\u27 historic patterns of reporting positive earnings are associated with the likelihood that firms discontinue economic hedges, increasing market risk exposure. I also find that leverage, growth, distress and analyst following are associated with the likelihood that firms continue economic hedges, maintaining market risk exposure but increasing earnings volatility. This study provides an example of how a change in accounting treatment affects firm behavior and results of this study contribute to our understanding of firm characteristics which influence managers to focus on accounting earnings versus market risk exposure.

Mental Health and Drivers of Need in Emergent and Non-Emergent Emergency Department (ED) Use: Do Living Location and Non-Emergent Care Sources Matter?

Emergency department (ED) utilization has increased due to factors such as admissions for mental health conditions, including suicide and self-harm. We investigate direct and moderating influences on non-emergent ED utilization through the Behavioral Model of Health Services Use. Through logistic regression, we examined correlates of ED use via 2014 New York State Department of Health Statewide Planning and Research Cooperative System outpatient data. Consistent with the primary hypothesis, mental health admissions were associated with emergent use across models, with only a slight decrease in effect size in rural living locations. Concerning moderating effects, Spanish/Hispanic origin was associated with increased likelihood for emergent ED use in the rural living location model, and non-emergent ED use for the no non-emergent source model. ‘Other’ ethnic origin increased the likelihood of emergent ED use for rural living location and no non-emergent source models. The findings reveal ‘need’, including mental health admissions, as the largest driver for ED use. This may be due to mental healthcare access, or patients with mental health emergencies being transported via first responders to the ED, as in the case of suicide, self-harm, manic episodes or psychotic episodes. Further educating ED staff on this patient population through gatekeeper training may ensure patients receive the best treatment and aid in driving access to mental healthcare delivery changes