Effects of the Adoption of Hedge Accounting
38 Pages Posted: 2 Dec 2015
Date Written: December 1, 2015
This study examines the effects of the adoption of hedge accounting for non-financial companies. In my analysis I use two market value proxies and employ a propensity-score matching model in attempt to control for different characteristics between non-adopters and adopters of hedge accounting. I observe a significant negative association for the adoption of hedge accounting and market value. This finding suggests that companies who have adopted hedge accounting may deviate from their optimal hedging strategy to meet all requirements and restrictions implemented in SFAS 133 in order to apply hedge accounting and thus decrease firm value. The observed association between hedge accounting and market value is lower for larger non-financial companies, while I do not observe varying effects of the adoption of hedge accounting for companies with different levels of risk exposure.
Keywords: Hedge accounting, capital markets, accounting for derivatives, propensity-score matching, risk-management
JEL Classification: M4
Suggested Citation: Suggested Citation