The Risk of Hedging Fair Value Change of Financial Assets: An Accounting Perspective

Abstract

This paper presents an accounting perspective for the need to make firms disclose how they can rely on accounting information to predict the risk of hedging the change in fair value of financial assets, as to provide meaningful information to the external users, and to recommend accounting regulatory bodies to mandate such disclosures. This paper uses two final regression models proposed to international banks and firms other than banks, and help both of them to predict the risk of hedging and to disclose this approach. The findings show accounting information positively and negatively associated with the risk of hedging fair value change of financial assets. For banks, return on equity, return on sales, book value of equity, financial crisis, and coronavirus pandemic, are the positively associated accounting information. And, value of earnings, price to earnings, account receivables turnover, cash flows from operations, debt to equity, return on assets, are the negatively associated accounting information. Moreover, for firms other than banks, return on sales, price to earnings, debt to equity, book value of equity, integrated reporting, are the positively associated accounting information. And, value of earnings, account receivables turnover, cash flows from operations, and coronavirus pandemic, are the negatively associated accounting information. This paper recommends future research to expand my findings and propose the idea to accounting regulatory bodies to work on a project for mandating such perspective, followed by empirical evidences.

Keywords: risk of hedging, fair value change, financial assets, accounting information, accounting regulatory bodies