Abstract
In a developing economy such as Nigeria, the business environment is characterized with risk that affects the operational efficiency and the performance of quoted firms. There is needed to make policies that will hedge against risk in the operating environment. This study examined the effect of hedge accounting on the market value of quoted oil and gas firms. A sample of 10 oil and gas firms was selected based on data quality and availability to address the requirements of the variables in the regression model. The study modeled market value as linear function of cash flow hedging, investment hedging and fair value hedging. Cross sectional data was sources from financial statement of the selected firms from 2011 to 2016. From the panel data result, (Fixed Effect Model) the study found that cash flow hedging have positive and significant relationship with market value while fair value hedging and investment hedging have positive but not significant relationship with market value of the quoted oil and gas firms. We therefore recommend that hedge accounting policies should be properly integrated to the operational objectives of the firms.
Highlights
In a developing economy such as Nigeria, the business environment is characterized with risk that affects the operational efficiency and the performance of quoted firms
R-squared The co-efficient of multiple determinations which is the R2 is 0.66. This means that the regression model captures as much as 66% of the total variation in market value of the quoted oil and gas firms
Adjusted R-squared The co-efficient of multiple determinations which is the R2adjusted is 0.50.4 This means that the regression model captures as much as 50.4% of the total variation in market value of the oil and gas firms after adjusting for errors
Summary
The accounting for derivative instruments at fair value creates a common issue for organizations that hedge risks using such instruments Such organizations may face an accounting mismatch between the derivative instrument which is measured at fair value, and the underlying exposure being hedged, as typically underlying exposures are recognized assets or liabilities that are accounted for on a cost or an amortized cost basis, or future transaction that have yet to be recognized. This accounting mismatch results in volatility in the financial statements as there is no offset to the change in the fait value of the derivative instrument. In the future, or Through a Net Investment Hedge which is a variation on a cash flow hedge, used to hedge foreign exchange risk associated with net investments in foreign currency denominated operations
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