Is the Value Relevance of Accounting Information Consistently Underestimated?

Published version of an article from the journal: The Open Business Journal, Bentham Publishing. Also available from the publisher: http://dx.doi.org/10.2174/1874915101003010001. Open Access articleThis study investigates the importance of accounting for the sign of earnings as well as disaggregating earnings in empirical value relevance research. The paper presents evidence that value relevance as measured by the explanatory power of regression analysis more than doubles if both the sign and the disaggregation effect are incorporated into the analysis. Thus, traditional value relevance regressions may seriously understate the value relevance of accounting information. However, value relevance is not equally underestimated across sub-samples. Hence, the conclusions of prior studies that have compared value relevance between sub-samples from different time-periods, industries, countries, etc. may be biased

A note on fair value accounting in a crisis: The influence of the hedge accounting regulations

Published version of an article published in the journal: Business and Economics Journal. Also available from the publisher at: http://astonjournals.com/manuscripts/Vol2010/BEJ-13_Vol2010.pdfThe role of fair value accounting in the financial crisis is contorversial and heavily debated. Some claim that fair value accounting of financial instruments contributed to the recent crisis. This note acknowledges that, in many industries, a significant proportion of the financial instruments are entered into for hedging purposes. I examine if a crisis through the hedge accounting regulations, can affect the overall use og fair value accounting in an economy. I present analytical evidence that the boosting price volatility during the crisis lead to more companies complying with the hedge accounting requirements, and thus to an increased extent of hedge accounting at the expence of fair value accounting. Hence the analysis suggests that the hedge effectiveness provisions ensure more hedge accounting in uncertain and turbulent times, which are exactly the periods when hedge accounting is especially called for

Does It Pay to be Green? A Study of the Global Microfinance Industry

This article examines whether it pays to be green in the microfinance industry. Environmental issues are important for all businesses around the world, and thus many microfinance institutions (MFIs) started embracing them as an additional objective alongside their traditional social and financial objectives. This article is among the first to test the relationships between environmental performance and both the financial and social performance of MFIs. Using a sample of 234 rated MFIs in 58 countries, we find that being green is associated with higher social and financial performance. Specifically, MFIs with environmental policies have higher financial performance (i.e., higher returns on assets, lower operating costs, and lower cost of capital) and higher social performance (i.e., a higher social rating score) than those without environmental policies. Overall, the results suggest that it pays to be green in the microfinance industry and this should motivate MFIs considering being green to do so.publishedVersio

Geographic diversification and credit risk in microfinance

Author's accepted manuscript.acceptedVersio

Excessive Focus on Risk? Non-performing Loans and Efficiency of Microfinance Institutions

publishedVersio

How fair-value accounting can influence firm hedging

Published version of an article in the journal: Review of Derivatives Research. Also available from the publisher at: http://dx.doi.org/10.1007/s11147-012-9084-yThe potential influence of accounting regulations on hedging strategies and the use of financial derivatives is a research topic that has attracted little attention in both the finance and the accounting literature. However, recent surveys suggest that company hedging can be substantially influenced by the accounting for financial instruments. In this study, we illustrate not only why but also how the accounting regulations may affect hedging behavior. We find that under mark-to-market accounting, most firms concerned with earnings smoothness adopt myopic hedging strategies relative to the benchmark, cash flow hedging. The specific influence of the accounting regulations depends on market and firm-specific characteristics, but, in general, the firms dramatically reduce the extent of hedging addressing price risk in future accounting periods. We illustrate that the change in hedging behavior significantly dampens the increase in earnings volatility stemming from fair value accounting of derivatives. However, the adjusted hedging strategies may substantially increase the firms’ cash flow volatility

The use of microfinance services among economically active disabled people: Evidence from Uganda

This study investigates the use of microfinance services among economically active disabled people in Uganda. The findings suggest that disabled people make more use of microfinance services than previously assumed. A total of 89 per cent of the survey's respondents state that they have used at least one type of microfinance service. Informal self-help schemes are more easily accessed than formal institutional schemes, and disabled people access more savings than loans. The multivariate analysis shows that access to microfinance services is positively related to education level. In addition, deaf people generally have less access to microfinance than those in other disability categories

Essays on the value relevance of accounting information

The dissertation consists of five independent essays on the value relevance of accounting information. Value relevance is defined as the ability of financial statement information to capture and summarise firm value. Value relevance is measured as the statistical association between financial statement information and stock market values or returns. The first essay of the dissertation is a thorough description of recent value relevance research. The remaining four essays are all empirical studies, conducted on Norwegian and Swedish samples. The first study concludes that if accounting earnings are a significant predictor of short term firm performance, it is reasonable to expect that they are also value relevant. However, this prediction may not be reversed. The second study finds that accounting information on average is equally value-relevant in traditional, mostly manufacturing, industries, and non-traditional, typically high-tech, industries when the higher frequency of transitory earnings in the non-traditional industries is taken into account. Still, the value relevance is significantly more unstable in non-traditional industries than in traditional ones. Specifically, the accounting information in non-traditional industries has particularly low information content, relatively speaking, to stock investors when the economy is doing well. The third study presents evidence that the value relevance of earnings increases dramatically if earnings are disaggregated and the sign of earnings is taken into account in the empirical analysis. The fourth and final empirical study concludes that the stock price’s association with book equity has increased after Norwegian exchange listed companies switched accounting regime to International Financial Reporting Standards (IFRS). However, the stock price’s response to earnings has actually gone down

The value relevance of losses revisited: the importance of earnings aggregation

Accepted version of an article published in the journal: Global Business and Economics Review. Also available from the publisher at: http://dx.doi.org/10.1504/GBER.2011.040728Prior research has suggested that earnings explain a larger portion of the variation in stock returns when disaggregated into components. This study shows that the increase in explanatory power stems primarily from disaggregation of negative earnings. When accounting earnings are sufficiently disaggregated into items, there is no longer a statistical difference in the value relevance of positive and negative earnings. Thus, negative earnings are also useful to stock investors. The findings are attributed to earnings persistence; even if losses are not persistent on an aggregate level, it may be the case that individual earnings items can provide information with respect to the future cash flow-generating capabilities of the firm