Changes In Value Of Assets Research Articles

Are defined contribution (DC) pension funds a stabilising factor in equity markets? Evidence from Chile, Italy, Mexico and Poland

We analyse the investment behaviour of the defined contribution (DC) pension fund sector in equity markets during and after the 2008–2009 financial crisis until the years 2014–2016 and here for Chile, Mexico, Poland, and Italy. We employ quarterly data on equity purchases and sales and on cash flow at the level of the whole pension sector. Applied are the following methods: analysis of average quarterly transactions; scatter plot analysis of the relation between average quarterly net purchases and quarterly changes in asset value, a correlation analysis of average quarterly transactions in the equity market and its index values, regression analysis of average quarterly transactions in the equity market and its index values. The results indicate that in Poland and Italy, pension funds behaved counter-cyclically, whereas in Chile there are some signs, although less statistically significant, of pro-cyclical behaviour. In the case of Mexico no conclusions could be drawn. The investment behaviour of pension funds might be influenced not only by their strategic decisions but also by other factors that are related to the institutional framework they operate within (e.g. a strategic asset allocation benchmark may induce pro-cyclicality).

Fair value in the measurement of assets and liabilities of selected banks

The main purpose of this article is to determine the impact of changes in the fair value of assets and liabilities on the overall net result of selected banks listed on the Warsaw Stock Exchange. The research covered the consolidated financial statements of five banks, for the years 2014-2018. Methods of analyzing the literature on the subject, financial statements, and legal acts, including selected IFRS, were used. It has been shown that, on the one hand, fair value revaluations have a significant impact on the financial result of the described entities; on the other hand, the fair value in these entities is determined mainly at the 1st level of the hierarchy. This means that the basis for determining the fair value is observable prices on the market, and that the impact of subjective estimates on the financial result is small.

Satisfying Bank Capital Requirements: A Robustness Approach in a Modified Roy Safety-First Framework

This study considers an asset-liability optimization model based on constraint robustnesswith the chance constraint of capital to risk assets ratio in a safety-first framework under the conditionthat only moment information is known. This paper aims to extend the proposed single-objectivecapital to risk assets ratio chance constrained optimization model in the literature by considering themulti-objective constraint robustness approach in a modified safety-first framework. To solve theoptimization model, we develop a deterministic convex counterpart of the capital to risk assets ratiorobust probability constraint. In a consolidated risk measure of variance and safety-first framework,the proposed distributionally-robust capital to risk asset ratio chance-constrained optimization modelguarantees banks will meet the capital requirements of Basel III with a likelihood of 95% irrespectiveof changes in the future market value of assets. Even under the worst-case scenario, i.e., when loansdefault, our proposed capital to risk asset ratio chance-constrained optimization model meets theminimum total requirements of Basel III. The practical implications of the findings of this study arethat the model, when applied, will provide safety against extreme losses while maximizing returnsand minimizing risk, which is prudent in this post-financial crisis regime.

Historical and Future Changes in Asset Value and GDP in Areas Exposed to Tropical Cyclones in China

AbstractTropical cyclones (TCs) can wreak havoc on the landscape and overwhelm communities. Since economic exposure is an important factor in damage function, an evaluation of economic exposure is essential because the characteristics of TC-related hazards are changing under accelerating economic development patterns. Here, we first reconstructed the wind and rainfall fields of historical TCs through an extensive database to extract the economic exposure to TC-prone areas on the mainland of China. We found that rainfall is an important factor in determining the affected extent of a TC event and that economic exposure will be misestimated when considering only the wind field. The results reveal that economic exposure to TCs has increased considerably from 1990 to 2015 and will continue to increase until the year 2100 under shared socioeconomic pathways (SSPs). We found that 66.7% of China’s gross domestic product [GDP; CNY 48.6 trillion (7.8 trillion U.S. dollars)] and 63.9% of China’s asset value [CNY 139.5 trillion (22.4 trillion U.S. dollars)] were concentrated in TC-prone areas in 2015 and increased at an average annual rate of 10.6% and 13.9%, respectively. Projections of GDP scenarios under SSPs revealed continued growth in the early twenty-first century, and the range of GDP and asset value in TC-prone areas by 2100 varied. Further detailed studies are needed to provide a detailed damage function for TC loss assessments under climate change and to consider how TC hazards will interact under changes in exposure and vulnerability related to economic development and social change.

Утицај промјена у пословном окружењу и нормативној основи финансијског извјештавања на исказну моћ мјерила финансијских перформанси компанија // The impact of changes in the business environment and normative basis of financial reporting on the presented power of measure of financial performance of the company

Резиме: Више од једног вијека стара рацио анализа, упркос бројним промјенама које су настале, нарочито у посљедње двије деценије у окружењу и пословању компанија, показала се као једноставан и брз начин идентификовања квалитета финансијског положаја и успјешности. Почетак примјене „мјешовите” основе финансијског извјештавања донио је усљед примјене фер вриједности промјену у садржини резултата и сопственог капитала. Околност да резултат садржи нереализоване добитке чија се реализација може очекивати у релативно кратком року, претворила је реализовани добитак из концепта историјског трошка у резултат који би компанија остварила ако до тренутка продаје финансијских средстава која се вреднују по фер вриједности кроз резултат не би било промјена њихове фер вриједности. Како су таква очекивања нереална, корисно је утврдити учешће нереализованих добитака/губитака у резултату. Слична, али јача потреба постоји и када је ријеч о сопственом капиталу, који садржи нереализоване добитке чија реализација ће усљедити у дужем периоду, па је вјероватноћа да ће доћи до промјена фер вриједности средстава и обавеза који се вреднују по фер вриједности кроз Остали укупан резултат виша. Мјерила финансијских перформанси која се утврђују на основу наведених величина због овога могу имати другачију висину и тумачење. Потреба да се мјерила перформанси прилагоде потребама инвеститора и повјерилаца наметнула је захтјеве за стварањем нових и коришћењем нефинансијских мјерила перформанси заједно са одабраним мјерилима финансијских перформанси.Summary: Until today despite the many changes that have occurred, particularly in the last two decades, in the business environment and operations of companies, more than a century old ratio analysis proved to be a simple and quick way of identifying the quality of their financial position and successfulness. The beginning of the application of „mixed” basis of financial reporting brought change in the content of results and in the equity due to the application of the fair value. The circumstances in which the result includes unrealized gains whose realization can be expected in a relatively short time, turned a realized gain out of the concept of historical cost into the result that the company would achieve if, until the sale of financial assets that are measured at fair value per result, there would not be any changes in their fair value. As such expectations are unrealistic it is useful to determine the share of unrealized gains/losses in the result. There is also a similar but stronger need when it comes to the equity, which includes unrealized gains whose realization will occur in a longer period, so there is higher probability that changes in the fair value of assets and liabilities which are measured at fair value per other total result will happen. Because of this measures of financial performance, which are determined on the basis of the stated parameters, can have different values and interpretations. The need to adapt the performance measures to the needs of investors and creditors imposed the requirements for establishing new ones and using non-financial performance measures together with the selected measures of financial performance.

Measuring Tail Risks at High Frequency

Abstract I exploit information in the cross-section of bid-ask spreads to develop a new measure of extreme event risk. Spreads embed tail risk information because liquidity providers require compensation for the possibility of sharp changes in asset values. I show that simple regressions relating spreads and trading volume to factor betas recover this information and deliver high-frequency tail risk estimates for common factors in stock returns. My methodology disentangles financial and aggregate market risks during the 2007–2008 financial crisis; quantifies jump risks associated with Federal Open Market Committee announcements; and anticipates an extreme liquidity shock before the 2010 Flash Crash. Received April 27, 2016; editorial decision August 10, 2018 by Editor Andrew Karolyi. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online

Banks' Asset Reporting Frequency and Capital Regulation: An Analysis of Discretionary Use of Fair-Value Accounting

ABSTRACTThis paper examines banks' choice between fair-value and historical-cost accounting when reported accounting information is used in capital requirement regulation. We center our analysis on a key difference between fair-value and historical-cost accounting: the frequency with which asset value changes are reported. We show that the elasticity of banks' loan returns to aggregate lending is a critical determinant of the interaction between capital adequacy requirements and accounting choices. If lending returns are inelastic, then higher capital requirements reduce fair-value usage. By contrast, higher capital requirements encourage fair value if capital requirements are low and lending returns are sufficiently elastic. In equilibrium, banks may elect different accounting choices, and we find that mandating uniform adoption of historical cost (fair value) is desirable when capital requirements are loose (tight). Our study offers many other implications about fundamental links between accounting and prudential choices.

Estimating annual investment returns from forestry and agriculture in New Zealand

This paper describes a method of estimating annual investment returns from forest growing businesses in New Zealand, using financial statement data. The method is also applied to survey data (derived from farm financial statements) published by New Zealand pastoral farming sector organisations. After data are adjusted for inflation, the total investment return is calculated as the sum of the cash return on assets, and the percentage change in asset value. The paper demonstrates that the total investment return calculated in this way is equivalent to the internal rate of return (IRR), for a single period of one year. The direct equivalence between this measure and the single-period IRR (calculated using discounted cash-flow analysis) is demonstrated algebraically and by example.Calculated values for forestry show a wide range of investment returns for different businesses in any one year, although there has been a general trend for total returns to increase for forestry businesses since about 2008. Investment returns for dairy and sheep and beef generally follow similar trends, with dairy providing a higher return on average than sheep and beef over the period studied. The data for forestry and agriculture are not directly comparable, since the forestry data are extracted directly from the financial statements of individual businesses and the farming data are derived through a process of averaging financial returns from a large number of farms, with the objective of providing typical returns for benchmarking. The scale of the operations are also significantly different, with the benchmark dairy farm being 148 ha, the sheep farm 764 ha and the forest businesses ranging from 21,000 ha to 150,000 ha (most recent year in all cases).The measure of total return used in this paper is attractive because it means the same measure can be used for evaluating existing businesses as would have been used to justify the initial set up of the business, or any projects that contributed to the business along the way. This provides a measure for ex post evaluation of existing investments that is consistent with one of the ex-ante decision criteria used at the time investment decisions are made. The method also provides separate estimates of the income or productive return, and the (usually) unrealised change in asset value. The paper demonstrates that the method can be applied to either individual company or industry average financial data equally easily. This method provides a viable alternative to using survey data to estimate annual investment returns.

Basics of the Wolfgang Stützel’s Balance Mechanics

Introduction, Purpose. The article considers the aspects of the Balance Mechanics developed in the middle of the XXth century by the German economist Wolfgang Stützel. Balance Mechanics aggregates all the interactions between the financial and real economic sectors. Since general orthodox neoclassical equilibrium DSGE models failed to predict the global financial crisis of 2007-2008, and due to their fundamental failure to simulate crisis situations in the economy, the post-Keynesian stock-flow consistent approach appears to be the main alternative in building macroeconomic models. Methods. A key feature of the SFC models is that they aggregate the full integration of real and financial sectors of the economy. These models use the system based on double-entry and four-entry accounting principles. Results. On the basis of the analysis of Stützel’s Balance Mechanics, it is possible to define some important concepts and terms, i. e. expenditure and revenue which influence the net value of financial assets of the economic agent; payments and revenue receipts which influence the volume of payment assets of the economic agent. It has been established that the total amount of all expenses shall be necessarily equal to the total income. Therefore, the total amount of financial savings (changes in the net financial value of assets) of all the economic agents in a closed economy (or world economy) always equals zero. The only way to provide the economy with savings is to increase the amount of non-financial assets, i. e. physical capital. Discussion. In accordance with Stüzel’s approach, the analysis of the macroeconomic paradoxes performed on the basis of neoclassical approach involves the “fallacious composition”, when the facts and assumptions which are true to an economic agent or a group of economic agents are fallaciously and unreasonably transferred to the whole aggregate of the economic agents.

Value impacts of energy efficiency retrofits on commercial office buildings in Toronto, Canada

This study strengthens the business case for building energy efficiency retrofits in Canada by studying the relationship between building energy efficiency and value. This is accomplished through a detailed examination of four large Toronto commercial office building retrofit case studies using pre- and post-retrofit energy and financial data. To assess the change in asset value with retrofit improvements, the income capitalization approach to building appraisal is adopted. This model for provides a link between energy efficiency and value through net operating income. Due to the challenges of obtaining energy-use and financial data, the sample size is small. However, even though the data is limited, the analysis reveals that energy retrofitting buildings can decrease operating costs, increase occupancy rates, and increase effective rent (rental revenue), thereby increasing net operating income. Although these benefits may not necessarily be achieved in every retrofit, where these benefits are realized, positive effects on value result.

Wealth effects on world private financial saving

This paper shows that about 70% of the variance of the yearly change in the world private financial saving rate can be explained by lagged changes in world stock and housing values for the sample period 1982–2013. A theory consistent with these results is that world asset-value changes affect world consumption and investment spending, which affects the world private financial saving rate.

On meeting capital requirements with a chance-constrained optimization model.

This paper deals with a capital to risk asset ratio chance-constrained optimization model in the presence of loans, treasury bill, fixed assets and non-interest earning assets. To model the dynamics of loans, we introduce a modified CreditMetrics approach. This leads to development of a deterministic convex counterpart of capital to risk asset ratio chance constraint. We pursue the scope of analyzing our model under the worst-case scenario i.e. loan default. The theoretical model is analyzed by applying numerical procedures, in order to administer valuable insights from a financial outlook. Our results suggest that, our capital to risk asset ratio chance-constrained optimization model guarantees banks of meeting capital requirements of Basel III with a likelihood of 95 % irrespective of changes in future market value of assets.

공공건축물의 가치제고를 위한 유지관리비 회계처리기준 개선방안

Abstract : Along with the change of national accounting, the importance of systematic management of assets is emphasized and the awareness that the concept termed Asset Management should be introduced to the construction field too to manage facilities. The present study is a basic study for the introduction of the concept Asset Management and proposed accounting guidelines(proposal) for public building maintenance cost that can clarify maintenance cost accounting. Existing literatures and current accounting standards were examined and the actual states of maintenance cost accounting of public buildings in A metropolitan city were examined to draw problems. For the practice guidelines(proposal), the types and contents of government office building maintenance expenditures were analyzed and items that must be treated as OPEX and CAPEX were presented. Expert interviews were conducted to verify the reliability of the items presented. The practice guidelines(proposal) were applied to the public buildings in A metropolitan city to identify situations of changes in asset values and review the effects of the practice guidelines(proposal) on increases in asset values. When applied to practices, the practice guidelines(proposal) suggested in the present study are considered to increase building asset values and provide consistent financial information to help stakeholders' decision making.

Accounting Earnings, Change in Market Value and Cash Flows

Our analyses are based on the observation that the portion of change in enterprise value captured in earnings differs according to the source of value change. These sources are: (1) cash flows to/from debt holders, equity holders, and/or cash reserves; and, (2) changes in value of assets in place (i.e., enterprise returns). We demonstrate that the effect on earnings of each source of growth captures distinct aspects of accounting conservatism. Although the effect of cash flows on earnings has received little attention in the extant literature, we show that it explains more of earnings than is explained by enterprise returns. We show that the difference in the portion of negative cf. positive enterprise returns captured in current earnings is similar to the portion of negative cf. positive equity returns reported in the extant literature. We also demonstrate an interaction between the sign of returns and cash flows.

Intermediaries as Information Aggregators: An Application to U.S. Treasury Auctions

According to most theories of nancial intermediation, intermediaries diversify risk, transform maturity or liquidity, and screen or monitor borrowers. In U.S. Treasury auctions, none of these rationales apply. Intermediaries submit their customer bids without transforming liquidity or maturity, and they do not screen and monitor borrowers or diversify scal policy risk. Yet, most end investors place their Treasury auction bids through an intermediary rather than submit them directly. Motivated by this evidence, we explore a new information aggregation model of intermediation. Intermediaries observe each client’s order ow, aggregate that information across clients, and use it to advise their clients as a group. In contrast to underwriting theories in which intermediaries, by acting as gatekeepers, extract rents but reduce revenue variance, information aggregators increase expected auction revenue, but also make the revenue more sensitive to changes in asset value. We use the model to examine current policy questions, such as the optimal number of intermediaries, the eect of non-intermediated bids, and minimum bidding requirements.

Dynamic interaction between markets for leasing and selling automobiles

We develop a model of dynamic interactions between price variations in leasing and selling markets for automobiles. Our framework assumes a differential game between multiple Bertrand-type competing firms which offer differentiated products to forward-looking agents. Empirical analysis of our model using monthly US data from 2002 to 2011 shows that variations in selling (cash) market prices lead rapidly dissipating changes of leasing market prices in the opposite direction. We discuss the practical implications of these results by augmenting a standard leasing valuation formula. The additional terms represent the leased asset value changes that can be expected on the basis of past variations in automobile selling market prices.

Financial reporting for employee stock options: liabilities or equity?

This study seeks to determine whether employee stock options share key characteristics of liabilities or equity. Consistent with warrant pricing theory, we find that common equity risk and expected return are negatively associated with the extent to which a firm has outstanding employee stock options, which is opposite to the association for liabilities. We also find the following. (1) The association is positive for firms that reprice options and less negative for firms that have options with longer remaining terms to maturity, which indicates that some employee stock options have characteristics that make them more similar to liabilities. (2) Leverage measured based on treating options as equity has a stronger positive relation with common equity risk than leverage measured based on treating options as liabilities. (3) The sensitivity of employee stock option value to changes in asset value mirrors that of common equity value and is opposite to that of liability value. Also, we find that, unlike liabilities, employee stock options have substantially higher risk and expected return than common equity. Our findings are not consistent with classifying employee stock options as liabilities for financial reporting if classification were based on the directional association of a claim with common equity risk and expected return. Rather, our findings suggest the options act more like another type of equity.

Deconstructing the Haig-Simons Income Tax and Reconstructing It as Objective Ability-to-Pay 'Cash Income' Tax

This article argues that the classic Haig-Simons formulation of personal income, namely, an individual’s consumption plus net increases in wealth for the taxable year, was not actually embraced by Simons himself, is contrary to fundamental political values, and (unnecessarily) raises intractable problems. Contrary to what adherents to the Haig-Simons concept assume, consumption is not an independent category of income, but only a deduction-disallowance principle of limited use. Likewise, the “accretion” notion of “changes in wealth” – referring to changes in asset values – cannot be maintained in the face of the realization principle – embraced by Simons – which (on the income side) is widely understood to refer to the receipt of cash or its deemed equivalent. On the deduction side, the notion of realization has erred by following accrual principles. Accordingly, not only should accrual taxation be abandoned, but the tax treatment of borrowing should be completely revamped, and depreciation would be eliminated. The problems attending the Haig-Simons income concept, as well as Simons’ goal of designing a tax compatible with a redistributive government, are resolved under an objective ability-to-pay personal income concept. Such a tax embraces the realization concept as a matter of principle. “Income” would refer to the flow of cash through an individual. Cash would be deemed to “flow out” not when it is spent on the purchase of an asset but rather when any asset purchased with cash is finally disposed of. Accordingly, the tax (called a “cash income tax”) would be a true income tax, as opposed to being a cash-flow consumption tax. The larger claim is that tax fairness should take a place at the tax policy table along with economic efficiency and welfarism. The contrary claims that tax fairness is a vague, subjective, and/or indeterminate notion are rejected. The notion of objective ability to pay is an internal-to-tax tax fairness norm that is constructed from the ground up by considering the role of taxation (in a liberal society) to raise cash revenue in an annual budget cycle. It is also shown that the concept dictates the content of a fair income tax with remarkable specificity, and in a way that is comprehensible and user-friendly. Numerous issues frequently disputed (or taken for granted) by tax commentators are covered, including those of income tax vs. consumption tax, imputed income, in-kind income, basis indexing, the personal deductions, the taxable unit, entity taxation, and even international taxation.

Financial Networks and Contagion

We study cascades of failures in a network of interdependent financial organizations: how discontinuous changes in asset values (e.g., defaults and shutdowns) trigger further failures, and how this depends on network structure. Integration (greater dependence on counterparties) and diversification (more counterparties per organization) have different, nonmonotonic effects on the extent of cascades. Diversification connects the network initially, permitting cascades to travel; but as it increases further, organizations are better insured against one another's failures. Integration also faces trade-offs: increased dependence on other organizations versus less sensitivity to own investments. Finally, we illustrate the model with data on European debt cross-holdings. (JEL D85, F15, F34, F36, F65, G15, G32, G33, G38)

The Financial Crisis from the Family's Perspective: Evidence from the 2007–2009 SCF Panel*

This paper examines changes in families' finances as captured in the 2007–2009 Survey of Consumer Finances panel. The broad contours of changes in families' assets, debts, and wealth align with changes in the corresponding aggregate measures, but the microdata from the panel highlight substantial variation in families' experiences between 2007 and 2009. Although more than 60% of families saw their wealth decline over the two‐year period, a sizable fraction experienced gains in wealth, while some families' financial situations saw little change on net. The shifts in wealth do not appear to be correlated in a simple way with families' characteristics. Instead, the patterns of mixed losses, gains, and modest shifts in wealth generally hold within groups defined by demographic characteristics or by 2007 wealth or income. On the whole, changes in wealth appear to stem from changes in asset values rather than from changes in portfolio composition or debt levels.