Hedging, hedge accounting, and earnings predictability

• 成果类型: Article
• 署名作者: Ranasinghe, Tharindra; Sivaramakrishnan, Konduru; Yi, Lin
• 署名单位: American University; Rice University; University of Houston System; University of Houston; University of Houston Clear Lake
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-021-09595-8
• 发表日期: 2022
• 页码: 35-75
• 关键词: forecast accuracy; Firm value; OIL; management; coverage; IMPACT; POLICY

摘要

Studies suggest that, pursuant to the implementation of SFAS 133, even sophisticated users of financial statements find it difficult to comprehend earnings implications of hedging derivatives. Moreover, due to stringent hedge accounting requirements under these standards, many economic hedges do not qualify for hedge accounting and are deemed ineffective for financial reporting purposes. Motivated by these considerations, we investigate the impact of hedging on earnings predictability by analyzing hand-collected hedging data from two industries that extensively use derivatives to manage price risks: the oil-and-gas exploration and production industry and the airline industry. In contrast to extant evidence, we find that overall hedging derivatives improve income predictability and increase (decrease) analysts' forecast accuracy (dispersion). We also show hedges deemed ineffective for hedge accounting can increase earnings volatility and significantly impair earnings predictability. This finding lends support to concerns expressed by some corporate managers and industry experts against stringent hedge accounting requirements.