Accounting Valuation and Current Cost Disclosures: The Case of Mexico

37 Pages Posted: 26 Mar 1997

See all articles by Paquita Y. Davis-Friday

Paquita Y. Davis-Friday

Zicklin School of Business; City University of New York - Stan Ross Department of Accountancy

Multiple version iconThere are 2 versions of this paper

Date Written: January 10, 1997

Abstract

This study investigates the relation between the market value of publicly traded Mexican firms and their disclosures of accounting information adjusted for changing prices. The volatile hyperinflationary environment in Mexico provides an ideal setting for investigating the value relevance of inflation accounting disclosures. Specifically, I investigate the only accounting information that is required in the body of the financial statements: general price level-adjusted and current cost disclosures. Extending the work of Edwards and Bell (1961) and Ohlson (1995), I estimate a valuation model that relates inflation accounting disclosures to firm value. The results indicate that general price level-adjusted and current cost disclosures explain a significant portion of the cross-sectional variation in the market value of Mexican firms. Further, the explanatory power of holding gains is robust to inflation rates that vary from 130% to 20%. These results suggest that current cost and constant peso disclosures are relevant for determining firm value over a wide range of inflation rates.

JEL Classification: E31, G15, M41, N26

Suggested Citation

Davis-Friday, Paquita Y., Accounting Valuation and Current Cost Disclosures: The Case of Mexico (January 10, 1997). Available at SSRN: https://ssrn.com/abstract=15034 or http://dx.doi.org/10.2139/ssrn.15034

Paquita Y. Davis-Friday (Contact Author)

Zicklin School of Business ( email )

55 Lexington Ave., Box B13-260
New York, NY 10010
United States
646-312-3048 (Phone)

City University of New York - Stan Ross Department of Accountancy ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States
646-312-3048 (Phone)
646-312-3161 (Fax)

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