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Hedging and earnings management in the light of IFRS implementation: Evidence from the UK stock market

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  • Iatridis, George

Abstract

This study examines the association between IFRS implementation, hedging and earnings management. It identifies the financial attributes of firms that utilise hedging and explores the IFRS transition process for hedgers and non-hedgers. This study also investigates the effects of a firm’s decision to use hedging or earnings management on firm value. The findings show that the transition to IFRSs has affected the equity, earnings, leverage and liquidity of hedgers in a significantly positive manner as opposed to non-hedgers, who presented a generally significant negative change in their respective figures. Hedgers tend to be larger sized and exhibit higher profitability, growth, leverage and liquidity. Hedgers also tend to have foreign revenues, be cross-listed in foreign stock markets and audited by a Big 4 auditor. This study reports that hedging and earnings management display an inverse relation. Firm value is found to be positively related to hedging and negatively related to discretionary accruals and managerial opportunism. Effective corporate governance mechanisms are found to display a negative association with discretionary accruals and a positive relation with firm value.

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  • Iatridis, George, 2012. "Hedging and earnings management in the light of IFRS implementation: Evidence from the UK stock market," The British Accounting Review, Elsevier, vol. 44(1), pages 21-35.
    • Handle: RePEc:eee:bracre:v:44:y:2012:i:1:p:21-35
    DOI: 10.1016/j.bar.2011.12.002
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    2. Bessler, Wolfgang & Conlon, Thomas & Huan, Xing, 2019. "Does corporate hedging enhance shareholder value? A meta-analysis," International Review of Financial Analysis, Elsevier, vol. 61(C), pages 222-232.
    3. Pelucio-Grecco, Marta Cristina & Geron, Cecília Moraes Santostaso & Grecco, Gerson Begas & Lima, João Paulo Cavalcante, 2014. "The effect of IFRS on earnings management in Brazilian non-financial public companies," Emerging Markets Review, Elsevier, vol. 21(C), pages 42-66.
    4. Majeed, Muhammad Ansar & Yan, Chao & Zhong, Huijie, 2022. "Do firms manipulate earnings after winning public-private partnership bids? Evidence from China," Emerging Markets Review, Elsevier, vol. 51(PB).
    5. Pavlopoulos, Athanasios & Magnis, Chris & Iatridis, George Emmanuel, 2017. "Integrated reporting: Is it the last piece of the accounting disclosure puzzle?," Journal of Multinational Financial Management, Elsevier, vol. 41(C), pages 23-46.
    6. Pavlopoulos, Athanasios & Magnis, Chris & Iatridis, George Emmanuel, 2019. "Integrated reporting: An accounting disclosure tool for high quality financial reporting," Research in International Business and Finance, Elsevier, vol. 49(C), pages 13-40.
    7. Anagnostopoulou, Seraina C. & Tsekrekos, Andrianos E., 2015. "Earnings management in firms seeking to be acquired," The British Accounting Review, Elsevier, vol. 47(4), pages 351-375.

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    More about this item

    Keywords

    Hedging; Earnings management; International Financial Reporting Standards; IFRS transition; Firm value;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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