Competing Accounting Treatments for Emission Rights: A Capital Market Perspective

54 Pages Posted: 8 Jan 2009 Last revised: 14 Jun 2009

See all articles by Stefan Veith

Stefan Veith

University of Bremen - Faculty of Business Studies and Economics

Joerg R. Werner

Frankfurt School of Finance & Management gemeinnützige GmbH - Accounting Department

Jochen Zimmermann

University of Bremen - Faculty of Business Studies and Economics; University of Bremen - Chair of Accounting and Control

Date Written: May 8, 2009

Abstract

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.

Keywords: Market valuation, emission rights, emission trade, accounting choices, gross and net approaches, fair value

JEL Classification: M41, M47, K23

Suggested Citation

Veith, Stefan and Werner, Jörg Richard and Zimmermann, Jochen, Competing Accounting Treatments for Emission Rights: A Capital Market Perspective (May 8, 2009). Available at SSRN: https://ssrn.com/abstract=1323810 or http://dx.doi.org/10.2139/ssrn.1323810

Stefan Veith (Contact Author)

University of Bremen - Faculty of Business Studies and Economics ( email )

Universitaetsallee GW I
Bremen, D-28334
Germany
+49 421 218-9122 (Phone)
+49 421 218-2869 (Fax)

HOME PAGE: http://www.controlling.uni-bremen.de

Jörg Richard Werner

Frankfurt School of Finance & Management gemeinnützige GmbH - Accounting Department ( email )

Adickesallee 32-34
Frankfurt, 60322
Germany

Jochen Zimmermann

University of Bremen - Faculty of Business Studies and Economics ( email )

Hochschulring 4
Germany
+49 421 218 9121 (Phone)

University of Bremen - Chair of Accounting and Control ( email )

Universitaetsallee GW I
Bremen, D-28334
Germany
+49 421 218-9119 (Phone)

HOME PAGE: http://www.controlling.uni-bremen.de

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