The Predictive Ability of Fair Values for Future Financial Performance of Commercial Banks and the Relation of Predictive Ability to Banks' Share Prices

Evans, Mark E.; Hodder, Leslie D.; Hopkins, Patrick E.

doi:10.1111/1911-3846.12028

Cited by 59 publications

(41 citation statements)

References 27 publications

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“…Proponents of fair value assert that fair values are relevant for financial decision making because fair value gives a better representation of the underlying economic reality for firms since it utilizes up-to-date market conditions [34,35,36,37,38,39,40,41]. The useful and reliable financial information helps investors to assess the amounts, timing and uncertainty of the entity's future cash flows.…”

Section: Literature Reviewmentioning

confidence: 99%

Effect of Mandatory Adoption of IFRS on Earnings Predictability of Firms in the Financial Services Sector

Ebirien

Nkanbia-Davies

Chukwu

2019

JEMT

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Aims:The paper empirically investigated the effect of mandatory adoption of International Financial Reporting Standards on earnings predictability of deposit money banks and insurance firms. Study Design: It adopted ex post facto research design. Place and Duration of Study:The study was conducted in Nigeria and covered the period 2008 to 2014. Methodology: The study used 196 firm-year observations obtained from annual reports of the deposit money banks and insurance firms quoted on the Nigerian Stock Exchange. It formulated two hypotheses and tested the hypotheses using random effect model of Generalized Least Square Method. Results: The regression results revealed that the mandatory adoption of IFRS did not improve earnings predictability of firms in the services sector, based on earnings and cash flows. The results Ebirien et al.; JEMT, 24(1): 1-12, 2019; Article no.JEMT.49287 2 also showed that the earnings predictability in the post mandatory IFRS adoption period was not significantly different between DMBs and insurance firms. Conclusions: Nigeria has relatively short IFRS experience and preparers are still contending with several evolving issues. The paper recommends sustained training for both the preparers, users and regulators so as to improve financial reporting and consequently enhance earnings predictability. Original Research Article

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Section: Literature Reviewmentioning

confidence: 99%

Effect of Mandatory Adoption of IFRS on Earnings Predictability of Firms in the Financial Services Sector

Ebirien

Nkanbia-Davies

Chukwu

2019

JEMT

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“…10 In this paper, the accumulated amount of fair value gains and losses for financial instruments is defined as FV1 and FV2. According to Evans et al (2014), the predictability to future performance can be analyzed through the accumulated amount of fair value gains and losses in a comprehensive income statement rather than the net income in the statement of comprehensive income, because the former is replaced for realized earnings.…”

Section: Descriptive Statistics and Correlation Analysismentioning

confidence: 99%

Investor perception of fair value evaluation: focusing on financial instruments

Kang

Yoo

2019

Investment Management and Financial Innovations

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This study analyzed capital market investors' recognition of the predictability of fair value-based valuation. It was examined if market investors overvalue the predictive value of fair value by comparing that value with that measured in accounting performance. The results reveal that investors are likely to overvalue fair value more than predictive values reflected in accounting performance. In particular, the results show that investors can gain abnormal returns through the market anomaly due to the functional fixation that investors cannot distinguish between unrealized profits and realized ones. Though there are considerable studies about accrual anomaly, few studies explore it with the separation of unrealized profits from total accruals. A number of studies about the causes of accrual anomaly have been conducted from various perspectives. The analysis of this study argues that the unrealized profits derived from fair value evaluation can be a cause of accrual anomaly. On the basis of the result, this study suggests that information about unrealized earnings should be reported separately.

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“…For instance, based on the studies of selected British companies (Aboody et al, 1999) it must be pointed out that revaluation of fixed assets (referred to capital from revision of evaluation that is a medium of comprehensive income) refers to a large extent to changes in operating profit and operating cash flows in the future. Moreover, it is emphasized in the literature that aggregate corrections of fair value relating to investments in securities are connected with future rates of return on these securities (Park et al, 1999;Evans et al, 2014). Empirical studies also show that evaluation of bonds according to fair value is positively related to future interests from these instruments.…”

Section: Predictive Power Of Comprehensive Income -The Literature Ovementioning

confidence: 99%

“…net profit) in subsequent accounting periods, on the other hand, higher profitability of banks in the future is observed, which is measured, inter alia, by means of return on assets ratios. Justification of the purpose of study results from high usefulness of presenting comprehensive income in financial reporting not only in the banking sector (Eccher et al, 1996;Evans et al, 2014;Park et al, 1999;Petroni & Wahlen, 1995;Venkatachalam, 1996). These aspects of comprehensive income of banks are a result of providing reliable information that shape a picture of future effects of activity of these entities, enabling to undertake and control creating and realization of future conditions, ways and results of action.…”

Section: Introductionmentioning

confidence: 99%

The role of comprehensive income in predicting banks? future earnings based on the practice of banks listed on the Warsaw Stock Exchange

Sajnóg

2017

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Research background: In the economic literature there are many arguments presented by critical supporters and opponents of measuring and reporting comprehensive income. There is a justified need to examine the relevance and usefulness of comprehensive income, especially the predictive power of comprehensive in-come for forecasting future earnings. It may be assumed that the comprehensive income has a better predictive power for future bank performance than net income, because this measure includes many elements, which were previously presented in the statement of changes in equity.

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The Predictive Ability of Fair Values for Future Financial Performance of Commercial Banks and the Relation of Predictive Ability to Banks' Share Prices

Cited by 59 publications

References 27 publications

Effect of Mandatory Adoption of IFRS on Earnings Predictability of Firms in the Financial Services Sector

Effect of Mandatory Adoption of IFRS on Earnings Predictability of Firms in the Financial Services Sector

Investor perception of fair value evaluation: focusing on financial instruments

The role of comprehensive income in predicting banks? future earnings based on the practice of banks listed on the Warsaw Stock Exchange

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