Abstract

http://ssrn.com/abstract=189853
 
 

References (14)



 
 

Citations (13)



 
 

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Comparing Alternative Hedge Accounting Standards: Shareholders? Perspective


Nahum D. Melumad


Columbia Business School - Accounting, Business Law & Taxation

Guy Weyns


Singapore Management University - School of Accountancy

Amir Ziv


Columbia Business School

July 1999


Abstract:     
We study the economic consequences of alternative hedge accounting rules in terms of managerial hedging decisions and wealth effects for shareholders. The rules we consider include the "fair-value" and "cash-flow" hedge accounting methods prescribed by the recent SFAS No. 133. We illustrate that the accounting method used influences the manager's hedge decision. We show that under no-hedge accounting, the hedge choice is different from the optimal economic hedge the firm would make under symmetric and public, information. However, under a certain definition of fair-value hedge accounting, the hedging decision preserves the optimal economic hedge. We then demonstrate that long-term and future shareholders prefer a certain definition of fair-value hedge accounting to no-hedge accounting, while short-term shareholders prefer either approach depending on risk preferences and the level of uncertainty. We speculate about circumstances in which a manager would choose not to adopt fair-value hedge accounting when he has the option not to do so.

Number of Pages in PDF File: 36

JEL Classification: G31, G32

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Date posted: November 8, 1999  

Suggested Citation

Melumad, Nahum D. and Weyns, Guy and Ziv, Amir, Comparing Alternative Hedge Accounting Standards: Shareholders? Perspective (July 1999). Available at SSRN: http://ssrn.com/abstract=189853 or http://dx.doi.org/10.2139/ssrn.189853

Contact Information

Nahum D. Melumad
Columbia Business School - Accounting, Business Law & Taxation ( email )
3022 Broadway
611 Uris
New York, NY 10027
United States
212-854-2475 (Phone)

Guy Weyns
Singapore Management University - School of Accountancy ( email )
60 Stamford Road
Singapore 178900
Singapore

Amir Ziv (Contact Author)
Columbia Business School ( email )
3022 Broadway, 101 Uris
New York, NY 10027 10027
United States
212 854-3485 (Phone)
212 253-4095 (Fax)
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References:  14
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Footnotes:  25

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