Growth in financial derivatives: The public policy and accounting incentives

Abdel-Khalik, A. Rashad; Chen, Po‐Chang

doi:10.1016/j.jaccpubpol.2015.01.002

Cited by 30 publications

(6 citation statements)

References 14 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…With the implementation of new accounting standards for financial instruments effective from 1 January 2019, future research may also look into the effect of accounting regulations on derivative use (Choi et al, 2015), as findings from developed countries show that for firms that aim at reducing earnings volatility, hedge accounting would encourage them to use derivatives for hedging purposes (Abdel-khalik & Chen, 2015).…”

Section: Discussionmentioning

confidence: 99%

“…Managers may apply derivative instruments to alleviate various types of financial risk and to manage earnings volatility. A review conducted by Tahat et al (2019) noted that the use of financial derivative instruments has seen exponential increase globally over the last two decades with a surge in the total notional amount of derivatives by 1,700% from $57.5 trillion to $696 trillion between 1990 and 2012 (Abdel-khalik & Chen, 2015) and an Earnings Volatility, the Use of Financial Derivatives and Earnings Management increase over 700% between 1998 to 2018 from $72 trillion to $600 trillion (Campbell et al, 2019). Firms can use derivatives as risk management tools to hedge the impact of adverse price or market movements on fair values or cash flows.…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Earnings Volatility, the Use of Financial Derivatives and Earnings Management: Evidence from an Emerging Market

Phua

Lok

Chua

et al. 2021

MJES

View full text Add to dashboard Cite

In the face of crises such as Covid-19, businesses become devastated by greater risk exposure, particularly in currency exchange, supply chain disruption, and fluctuation in commodity prices that cause volatile earnings trends. Higher earnings volatility is frequently associated with greater risk. Consequently, firms could be inspired to engage in earnings management or derivative use as attempts to mitigate earnings volatility. Using a sample of 169 of the largest non-financial firms with 507 firm-years observations from an emerging market, the researchers examined the relationship among derivative use, earnings volatility, and earnings management. The results of a panel regression analysis showed that derivative use by Malaysian public listed companies was positively connected with earnings volatility, inferring that the use of derivatives did not mitigate earnings volatility as intended. This study also found that both earnings volatility and derivative use have a positive relationship with earnings management. This implies that firms engage in earnings management to curb earnings volatility under circumstances where derivative use is associated with higher earnings volatility. Evidence derived from this study contributes to extant literature on financial risk management involving financial instruments, an area that is very much understudied in the contexts of emerging markets.

show abstract

Section: Discussionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Earnings Volatility, the Use of Financial Derivatives and Earnings Management: Evidence from an Emerging Market

Phua

Lok

Chua

et al. 2021

MJES

View full text Add to dashboard Cite

show abstract

“…The derivatives market has experienced significant growth in recent years, necessitating proper disclosure of risk and risk management in financial statements (Abdel-Khalik and Chen, 2015; Ehlers and Packer, 2013). The demand for enhanced risk reporting stems from the belief that it can improve stakeholders’ understanding of business risks, promote effective resource allocation and enhance stewardship (ICAEW, 2011).…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

Fighting through the Flesch and Fog: the readability of risk disclosures

Toerien,

du Toit

2023

ARJ

View full text Add to dashboard Cite

Purpose The purpose of this study is to evaluate whether the amendments to International Accounting Standard (IAS) 39 and the introduction of International Financial Reporting Standards (IFRS) 9 enhanced the readability, and thus the quality and usefulness of risk disclosure information. Design/methodology/approach Readability analyses are performed on companies listed on the Johannesburg Stock Exchange (JSE) from 2005 to 2021. The sample period includes the period when companies disclosed information according to IAS 39 (2005–2017) and IFRS 9 (2018–2021). Findings The results of the analyses show risk disclosures for JSE-listed companies to be complex and difficult to understand. Furthermore, risk disclosures have become longer and less readable with the introduction of amendments to IAS 39 and the introduction of IFRS 9. Research limitations/implications This study uses readability measures as a proxy for the complexity and usefulness of risk disclosures. The amount of utility a user of financial statements derives could be dependent on other factors such as the quality of disclosure, individual user background and perceptions. Practical implications The results have valuable implications for the various stakeholders that make use of the information contained in financial statements. Stakeholders such as regulators and standard setters should carefully assess how accounting standards change to ensure that one of the key objectives of the IASB, namely, to provide information that is relevant, reliable and understandable, is met. Originality/value The results of this study contribute to the discourse on the usefulness of companies’ risk disclosures. Though, to the best of the authors’ knowledge, this is the first study to compare the readability of risk disclosures from an emerging market perspective, the results can be applied to other countries using IFRS to assess the readability of risk disclosures.

show abstract

“…Currently, a large number of studies in the field of derivative financial instruments (derivatives), but a holistic picture of their practical use is lacking [8,9]. Therefore, in the study of methods of development of economic relations, it is important to use derivative financial instruments that take into account the behavior of financial market participants to achieve corporate goals and the choice of effective mechanisms for the formation and use of innovative financial instruments.…”

Section: Introductionmentioning

confidence: 99%

Derivative financial instruments in the activity of enterprises of the agrarian sphere of economy

et al. 2021

View full text Add to dashboard Cite

The article presents the ways of strengthening the financial state, solvency, investment attractiveness and financial stability of agricultural organizations by expanding existing and finding new markets for products, additional sources of funding, wide use of derivative financial instruments and hedging in the practice of management. The subject of the research is the consideration of modern ways of bringing agricultural products from the producer to the end consumer. The purpose of the study is to reflect the possibilities of using derivative financial instruments in settlements of agricultural organizations with counterparties. In the course of the study, the concept of derivative financial instruments, which are widely used in the world stock exchange practice, but at present in Russia have not yet found wide application, is given. The economic efficiency of agricultural organizations is largely determined by the organization of sales of agricultural products, the choice of distribution channels in order to reduce the delivery time of products to consumers, improve its quality and reduce the cost of its implementation. It is concluded that in the current economic situation successful sales of agricultural products can be held through the exchange market through forward (futures) contracts for the immediate transfer of rights and obligations to perform the real delivery of agricultural products in the future on a certain date.

show abstract

Growth in financial derivatives: The public policy and accounting incentives

Cited by 30 publications

References 14 publications

Earnings Volatility, the Use of Financial Derivatives and Earnings Management: Evidence from an Emerging Market

Earnings Volatility, the Use of Financial Derivatives and Earnings Management: Evidence from an Emerging Market

Fighting through the Flesch and Fog: the readability of risk disclosures

Derivative financial instruments in the activity of enterprises of the agrarian sphere of economy

Contact Info

Product

Resources

About