Competing Accounting Treatments for Emission Rights: A Capital Market Perspective
University of Bremen - Faculty of Business Studies and Economics
Joerg R. Werner
Frankfurt School of Finance & Management gemeinnützige GmbH
University of Bremen - Faculty of Business Studies and Economics; University of Bremen - Chair of Accounting and Control
May 8, 2009
This study provides comparative tests for the decision usefulness of four accounting alternatives for emission rights. In current accounting practice, cost-based net approaches as well as cost- and market-based gross approaches coexist. Modelling the available accounting treatments as reporting alternatives for a sample of the major polluters within the EU ETS, we present empirical evidence on their suitability in a market valuation setting. We find that the cost-based net approach provides additional information while gross methods, even the full market-based disclosures, do not. We thus show that an increase in reporting complexity does not always yield superior information con-tent. Our results contribute to discussions of the economic impact of emission trading and to appropriate accounting treatments of such schemes.
Number of Pages in PDF File: 54
Keywords: Market valuation, emission rights, emission trade, accounting choices, gross and net approaches, fair value
JEL Classification: M41, M47, K23working papers series
Date posted: January 8, 2009 ; Last revised: June 14, 2009
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