Disclosure Of Financial Instruments Research Articles

Análisis de los determinantes de revelación de instrumentos financieros mediante el uso de componentes principales: el caso de empresas mexicanas

El propósito de esta investigación es identificar las principales características que determinan el nivel de cumplimiento de la IFRS 7 (Instrumentos financieros: información a revelar) para un conjunto de empresas mexicanas. Con la técnica de componentes principales para medir el índice de revelación de las empresas, los resultados econométricos destacan que el tipo de auditor, el nivel de multinacionalidad y, en menor medida, el tamaño de las empresas son los determinantes clave para que las empresas cumplan la norma internacional de información financierarelativa a la revelación de instrumentos financieros. Estos hallazgos son consistentes con los obtenidos con métodos previos para medir el índice de revelación, lo que genera robustez y consistencia a nuestros resultados.

Factors affecting financial instruments disclosure in emerging economies: the case of Jordan

The current study investigates factors affecting financial instruments (FI) disclosure for a sample of Jordanian listed companies (82 firms) over two consecutive years (2013 and 2014). An un-weighted disclosure index is used to examine the extent of FI disclosure. In addition, the study employs a number of multiple regression models to examine the determinants of FI disclosure. The findings indicate that the level of FI disclosure provided by the sample firms is relatively low with only 52% of FI-related items being supplied. In addition, the results illustrate that the level of FI-related disclosure has a statistically positive association with firm size, the audit firm employed and corporate governance attributes. However, the current study fails to document significant associations between FI disclosure and firm industry or ownership structure variables. This research provides a number of insights for policy makers. First, the results of the current study could help the IASB when revisiting FI-related accounting standards to consider an emerging country's perspective. In addition, it provides some insights to accounting regulators in Jordan about how Jordanian listed firms respond to IFRS 7 requirements.

The comparability of IFRS 7 in the European banking sector

The aim of this paper is to investigate the level of comparability of the IFRS 7 Financial Instruments Disclosure in banks’ annual reports across different European countries (Italy, Spain, France, Germany and UK) from 2007 to 2014. The banking sector seems to be particularly concerned with the issue of financial risks, especially during the most recent global financial crisis. In addition, risk disclosure has led to vigorous debates at both the national and international levels among scholars and standard setters. To test the comparability across countries, we use the van der Tas C index. Our results show that there is a medium level of comparability. Despite the accounting boards’ and authorities’ commitment to regulating this information, there are still substantial differences in the practices of risk disclosure, which have negative effects on comparability. Our results show that an increase in the degree of comparability exists during the observed period but we are still far from a condition of full comparability due to the presence of factors other than regulations that may affect accounting practices. These findings could be helpful for the decisions of institutional regulatory bodies and for investors.

Factors affecting financial instruments disclosure in emerging economies: the case of Jordan

Factors affecting financial instruments disclosure in emerging economies: the case of Jordan

The value relevance of financial instruments disclosure: evidence from Jordan

Purpose The purpose of this paper is to: examine the value relevance of financial instruments disclosure (FID) provided by Jordanian listed companies under International Financial Reporting Standard (IFRS 7) as compared to that supplied under IAS 30/32; provide evidence about the value relevance of high vs low levels of FID; and investigate which components of FI-related information are more value relevant. Design/methodology/approach A sample of 70 Jordanian listed companies is used in this monograph. A disclosure index checklist was constructed to measure FI information provided by the sample companies. In addition, a valuation model is employed to test the association between FID and market value. Findings Although evidence is provided that FI information was value relevant over the two periods of investigation, the information supplied after the implementation of IFRS 7 was more strongly associated with market values. An analysis of the sub-components of FID reveals that the details about balance sheet, fair value and risk information matter when valuing equity. Overall, the results indicate that investors value FI-related information when making their equity pricing decisions. The result suggests that compliance with IFRS mandatory disclosure requirements does produce relevant financial statements. Research limitations/implications The results of the current study have a number of implications for policy makers. First, they provide a great deal of insight for the IASB about the relevance of its standards to countries outside the western context. In addition, the findings provide valuable insights for policy makers in Jordan who are concerned about the implications of mandatory disclosures. Originality/value The analysis of FID in developing countries in general, and in Jordan in particular, has been overlooked by the extant literature and therefore this study is the first of its kind to examine this research issue for a sample of Jordanian firms.

The impact of IFRS 7 on the significance of financial instruments disclosure

Purpose The main aim of this paper is to investigate Financial Instruments (FIs) disclosures provided by Jordanian listed companies under International Financial Reporting Standard No. 7 (IFRS 7) as compared to those supplied under International Accounting Standards (IAS) 30/32. Design/methodology/approach A sample of 82 Jordanian listed companies is used in this monograph. A disclosure index checklist was constructed to measure FI information provided by the sample companies. Findings The study finds that a larger number of Jordanian listed companies provided a greater level of FI-related information after IFRS 7 was implemented. Specifically, the sample firms provided 47 per cent of the disclosure index items after implementing IFRS 7 as compared to 30 per cent under IAS 30/32. In addition, the industrial analysis of FI disclosure revealed that the highest level of disclosure was provided by firms in the banking sector over the two periods; these companies disclosed 44 per cent of FI-related items pre-IFRS 7 and 69 per cent of items post-IFRS 7. Moreover, the industrial analysis of FI disclosure pre-and post-implementation of IFRS 7 revealed specific aspects of usefulness. In particular, some components of FI disclosure (Balance Sheet and Fair Value) showed no significant differences within and across sectors post the implementation of IFRS 7, suggesting that the new standard may have enhanced the comparability of such information. Research limitations/implications The results provide timely findings to Jordanian authorities who may be trying to evaluate the current reforms adopted; stringent enforcement mechanisms are needed to ensure full compliance with accounting standards. However, the present investigation was conducted on a single nation (Jordan); the circumstances in Jordan gave rise to the importance of the current study. A cross-country comparative analysis is needed in order to examine the application of IFRS 7 in a developing country context. Practical implications The results of the current study have a number of implications for policymakers. First, they provide a great deal of insight for the International Accounting Standards Board about the relevance of its standards to countries outside the Western context. In addition, the findings provide valuable insights for policymakers in Jordan who are concerned about the implications of mandatory disclosures. Originality/value The analysis of FI disclosure in developing countries in general, and in Jordan in particular has been overlooked by the extant literature and therefore this study is the first of its kind to examine this research issue for a sample of Jordanian firms.

Accounting for Financial Instruments: An Empirical Analysis of European Companies

Accounting for financial instruments according to international standards is one of the most sophisticated tasks for standard setters and preparers. Existing empirical research on this topic is rare and mainly concentrates on industry or national situations. Therefore, further research and especially empirical studies are needed to get a better understanding of the recognition, measurement and disclosure of financial instruments. This paper provides current evidence on the practical relevance of financial assets and liabilities in European publicly traded companies listed in the STOXX Europe 600 for the fiscal year 2015. A content analysis shows that financial assets have a stronger importance in the financial industry as in the non-financial industry. We can also demonstrate that a fair value measurement for financial assets and liabilities is only important for the financial industry, while the average usage in the non-financial industry is marginal. Moreover, the critical level 3 fair value, which is based on unobservable data, has only a very low importance in both industries. The often mentioned critique that fair values are not objective and not verifiable is, therefore, unfounded. Surprisingly, we identified substantial problems in the disclosure quality of financial assets and liabilities’ data in the notes which cannot be explained by company specific variables. Especially this finding demonstrates that the comparability of financial statements is not always given and does not improve the usefulness for the various stakeholders and their investment decisions. Researchers are invited to conduct additional studies for other periods and samples which can be helpful to gain further insights as well as to improve the current disclosure shortcomings.

Hedge Accounting in the Brazilian Stock Market: Effects on the Quality of Accounting Information, Disclosure, and Information Asymmetry

ABSTRACT This paper investigates, in the Brazilian stock market, the effect of hedge accounting on the quality of financial information, on the disclosure of derivative financial instruments, and on the information asymmetry. To measure the quality of accounting information, relevance metrics of accounting information and book earnings informativeness were used. For executing this research, a general sample was obtained through Brazilian companies, non-financial, listed on the Brazilian Securities, Commodities, and Futures Exchange (BM&FBOVESPA), comprising the 150 companies with highest market value on 01/01/2014. Through the general sample, samples were compiled for applying the econometric models of value relevance, informativeness, disclosure, and information asymmetry. The sample for relevance had 758 companies-years observations within the period from 2008 to 2013; the sample for informativeness had 701 companies-years observations with the period from 2008 to 2013; the sample for disclosure had 100 companies-years observations, within the period from 2011 to 2012; the sample for information asymmetry had 100 companies-years observations, also related to the period from 2011 to 2012. In addition to the econometric models, the propensity score matching method was applied to the analyses of the hedge accounting effect on disclosure and information asymmetry. The evidence found for the influence of hedge accounting indicates a relation: (i) positive and significant concerning accounting information relevance and disclosure of derivatives; (ii) negative and significant for book earnings informativeness. Regarding information asymmetry, although the coefficients showed up as expected, they were not statistically significant.

Financial instruments disclosure: the case of Qatari listed banks

The aim of this study is to investigate the determinants of International Financial Reporting Standard (IFRS) 7 disclosures on Qatari listed banks. An un-weighted disclosure index and multiple regression analysis were employed to conduct this study; a sample from 2007 (the first year of IFRS 7's implementation) to 2012. The banks' characteristics employed are bank size, the existence of a risk management committee (RMC), net assets value (NAV), the cost to income (CTI) ratio, earnings per share (EPS) and the price earnings (PE) ratio. The level of financial instruments (FIs) disclosure was 52% in 2007 and by the end of 2012 it had reached 71%. Moreover, the study found that the FIs disclosure is significantly and positively associated with a bank's size and the presence of an RMC. This study contributes to our knowledge in a number of ways: for example, it indicates how IFRS 7's implementation has impacted on banks' financial instruments disclosures.

English

English

Financial Instruments: Meeting Disclosure Requirements Defined by IFRS 7 in Energy Industry in the Czech Republic

Abstract IFRS 7 has brought new requirements on disclosure of financial instruments to be included in the financial statements prepared in accordance with the International Financial Reporting Standards. We tested coverage of the requirements on disclosure of financial instruments in the financial statements according to IFRS in the energy industry in the Czech Republic. The energy industry was selected as the representative of the production industry where financial instruments occur but are not the major business focus – contrary to the financial or banking sector.

Financial Instruments Disclosure Practices: Evidence from Malaysian Listed Firms

The current changes in business settings have directed companies to conduct businesses at the international level which requires the use of financial instruments. The-mandatory MFRS 7, an adoption of IFRS 7 standard has been implemented for entities to disclose their involvement with financial instruments. Thus, the aimed of this study is to investigate the financial instruments disclosure practices (FID) among Malaysian listed companies; specifically, on the level of compliance with MFRS 7. The overall results indicate that companies complied with MFRS 7, though there are several requirements omitted by companies. Furthermore, with the revised of MCCG in 2012, this study examines the association of corporate governance mechanisms with the extent of FID among companies. Based on sample of 319 companies, result indicates that audit committee independence, internal audit independence (out-source) and audit fees are positive and significantly associated with FID. Hence, it suggests that effective corporate governance may have some influence on the extent of disclosure level among companies.

Disclosure of financial instruments according to International Accounting Standards: empirical evidence from Brazilian companies

This article analyzes the level of disclosure of financial instruments in the financial statements of Brazilian companies in light of the requirements of the International Accounting Standards Board (IASB). We examined the annual reports of a sample of 24 nonfinancial firms provided to the Brazilian and the American capital markets for the years from 2002 to 2006. The main results are that the reports to the Brazilian market have an average disclosure level that it statistically inferior to the level of the reports released to the American market, and firms in regulated sectors, firms with a longer history of issuing ADRs and larger firms show higher levels of disclosure.

Risk Management Committee and Financial Instrument Disclosure

In this paper, we empirically investigate the influence of several characteristics of firms on the extent to which Malaysian listed companies disclosed financial instruments during the voluntary and mandatory periods of MASB 24 (Financial Instruments: Disclosure and Presentation) Standard. Following prior studies, we predict that larger and more profitable firms are more likely to disclose more information on financial instruments. We also hypothesize that strong internal control mechanisms, such as the existence of a risk management committee and audit quality, also result in higher levels of disclosure. The sample consists of firms that were listed with the Main Board of Bursa Malaysia in 1999, 2000, 2002, and 2003. This study employs a multiple regression analysis over 484 firm-years. Our results indicate that, on average, the disclosure quality among Malaysian firms is low before the period of mandatory disclosure. However, the level of disclosure appears to increase immediately after the issuance of the MASB 24. We also find that the existence of a risk management committee, firm size and leverage are positively associated with the disclosure quality of financial instruments. Finally, in general, the results indicate that the implementation of financial instrument disclosure standards influence firms, to some extent, to provide high-quality reporting.

Derivatives use and financial instrument disclosure in the extractives industry

AbstractThis article documents the use and disclosure of derivatives in the Australian extractives industry. We find that derivatives are used by 23 per cent of our sample, with mitigation of commodity risk and foreign exchange risk being the most common purposes for which derivatives are used. The most common types of derivatives used in the sector for hedging purposes are forward rate agreements and options. Results indicate that derivative use is positively associated with financial risk and firm size. We also examine the relation between firm characteristics and the extent of financial instrument disclosure, using a disclosure index based on the additional requirements in IFRS 7 Financial Instruments: Disclosures. Empirical results reveal that large firms with higher leverage, which use derivatives, and are audited by a Big 4 auditor provide more extensive disclosure of financial instruments.

The reason for the regulation of contracts for difference and its impact on hedge fund activism

The Financial Service Authority (FSA) introduced a new regime requiring the disclosure of synthetic holdings equally to shares with effect of September 2009. The disclosure of shares assists identifying dominant investors; however, the disclosure of synthetic holdings does not serve the same purpose and therefore logic suggests that the new regime does not satisfy the rationale of shareholder disclosure. The motivation of current research is to analyse the implications of this regime. It generates extensive costs which has inevitably detrimental effects on the UK financial market. The focus of this research will be on hedge funds engaging in the influence of companies, so-called activist hedge funds, for which the negative effect is most evident. The approach is as follows. First existing alternatives under the market abuse regime (MAR) will be analysed which ought to govern misconducts by exploring relevant cases. Second, it will be investigated whether the new regime is market or regulator induced. For this purpose a collection of market responses will be analysed which are representative for the market concern. Second, a literature review on the regulators framework will be conducted to investigate the reliability of FSA's argumentation on the raison d’etre of the regime. In addition, guidance on the disclosure of financial instruments will be scrutinised inter alia in a comparative study. The findings suggest that base for the current regime is faulty and the costs exceed the benefits. It will be recommended that the regime needs revision and should approximate the US regime.

Financial instruments disclosure in an unregulated and regulated reporting environment: a proprietary cost perspective

In this study, proprietary cost theory is used as a basis to compute a disclosure index to investigate the effect of hedging strategies and investment growth opportunities on management’s incentives to voluntarily disclose proprietary information relating to financial instruments. Using a sample of 69 Australian listed companies, a weighted disclosure index for perceived ‘proprietariness’ of the information contained in each disclosure item was computed in the pre- and post-regulation periods, of the Australian Accounting Standard, AASB 1033 ‘Financial Instruments: Presentation and Disclosure’. On the basis of this computed index, the results reveal significant increase in voluntary disclosure of proprietary information between the pre- and post-regulation periods. Findings from the study also suggest that firms’ growth opportunities have some influence in limiting voluntary disclosure of proprietary information in the unregulated period. Implications of the findings for standards-setters and financial statement users are also discussed in this paper.

Fair value hierarchy in financial instrument disclosure. Is there transparency for investors? Evidence from the banking industry

The debate on fair value accounting is still open although the last 20 years have been spent in looking for solutions by academics, practitioners and institutions. After long and continuous discussion both on the basic concepts and the information level contained in fair value measurements and on the different solutions that are possible to adopt in mark to market measurements, IASB and FASB have recently issued new standards on fair value measurements applying some principles not only to financial instruments but also to property and other investments. To verify if the solutions adopted in these Standards really improve the disclosure level and the “usefulness of data for investors”, this paper analyzes the actual level of transparency and the “usefulness” of the “fair value hierarchy” (which from some points of view synthesized the Board’s way of thinking regarding to fair value) which has already been introduced for financial instruments by IFRS 7, Financial Instruments: Disclosure. The paper presents results of an empirical investigation on a sample of domestic and foreign listed banks that adopted fair value hierarchy in line with SFAS 157 and IFRS 7 recommendations. Research questions can be summarized as follows: (i) does fair value hierarchy improve transparency in financial instrument evaluation in bank annual reports, or can it be considered as a tool for earnings management?

Corporate derivatives and foreign exchange risk management

PurposeThe purpose of this paper is to identify the factors affecting firms' decision to use foreign exchange (FX) derivative instruments by using the data of 86 non‐financial firms listed on Karachi Stock Exchange for the period 2004‐2007.Design/methodology/approachRequired data were collected from annual reports of listed firms of Karachi Stock Exchange. Non‐parametric test was used to examine the mean difference between users and non‐users operating characteristics. Logit model was applied to analyze the impact of firm's financial distress costs, underinvestment problem, tax convexity, profitability, managerial ownership and foreign exchange exposure on firms' decision to use FX derivative instruments for hedging.FindingsResults explain that firms having higher foreign sales are more likely to use FX derivative instruments to reduce exchange rate exposure. Moreover, financially distressed large‐size firms with financial constraints and fewer managerial holdings are more likely to use FX derivatives.Research limitations/implicationsIncomplete financial instrument disclosure requirements restricted researchers to using binary variable as a dependent variable instead of notional value or fair value of derivative usage.Practical implicationsThe study shows that in the presence of amateur derivative market, Pakistani corporations possessing higher agency costs of debt, agency costs of equity, and financial constraints will benefit more by defining hedging policies coherent with the firm's investment and financing policies in order to enhance firm value.Originality/valueUntil now, no earlier empirical study focused on the determinants of a firm's hedging policies in Pakistan, in the presence of volatile exchange rates,. The current study, therefore, attempts to identify the factors which affect the firm's decision to use derivative instruments for hedging FX exposure of non‐financial firms in Pakistan.

The influence of international taxation structures on corporate financial disclosure patterns

This paper investigates the extent of financial instrument disclosures (FIDs) within the annual reports of Australian listed extractive resource companies over a 4-year longitudinal period (2003–2006) and its association with international tax characteristics. Statistical analysis shows that thin capitalisation structures and withholding taxes are positively and significantly associated with disclosure patterns. In contrast, the occurrence of foreign sourced income and tax haven links are significantly negatively associated with FID patterns. These findings demonstrate that international tax structures can influence corporate disclosure patterns. This paper contributes to an understanding of the extent, trends and rationale behind resource firms’ financial instrument disclosure practices in Australia.