An investigation of the value relevance of alternative foreign exchange disclosures

• 成果类型: Article
• 署名作者: Sabac, F; Scott, TW; Wier, HA
• 署名单位: University of Alberta
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1506/4FHK-1A2U-EL9Q-QHDK
• 发表日期: 2005
• 页码: 1027-1061
• 关键词: earnings; translation; price; POWER; firm; LAW

摘要

We demonstrate analytically and empirically that valuing a firm with foreign operations in the presence of exchange rate uncertainty requires information on the foreign operating cash flows disaggregated by currency and persistence. In particular, given consolidated earnings, investors need information on the exchange gain or loss on permanent foreign operating cash flows. We extend the model to show how the permanent foreign cash flows can be used to condition the change in the translation adjustment to make it value-relevant; however, using the permanent foreign cash flows directly is superior for valuation purposes. The empirical tests support our hypothesis that the market response to exchange rate movements is sensitive to the relative magnitudes of revenues and costs denominated in each foreign currency in which a firm has transactions. Disclosure of cash flows by currency should enhance the valuation of firms with foreign operations.