Value Of Liabilities Research Articles

DETERMINASI MODEL ALTMAN Z SCORE TERHADAP RETURN SAHAM

This research goal is to determine the effect of the company's bankruptcy rate using the Altman Z-Score method on stock returns in the property and real estate sub-sector companies for the 2015-2019 period. The research population was 69 companies and the sample was 16 properties and real estates listed on the Indonesia Stock Exchange. The method used in this research is the method of Hypothesis Testing. The analytical tool used is multiple linear regression analysis tested using Statistical Package for The Social Science (SPSS) version 25. This research uses secondary data, in the form of complete financial statements during the research period. The results showed that the variables proxy by Altman Z-Score, namely Working Capital to Total Assets, Retained Earning to Total Assets, Earning Before Interest and Taxes to Total Assets, and Book Value of Equity to Book Value of Total Liabilities had a positive and significant effect on stock returns.

The effect of the balance sheet approach on the usefulness of accounting information in assessing bank default risk

This study investigates the effect of the balance sheet approach, where financial reporting focuses on asset and liability valuation, on the usefulness of the capital adequacy ratio in the evaluation of bank default risk by credit rating agencies. We examine Japanese banks, which play the central role in the Japanese economy, and whose capital adequacy ratios are affected by the fair value measurement under the balance sheet approach. We adopt Demerjian’s (2011) approach to develop a bank-level measure of balance sheet focus. Although we find a significant positive correlation between the slack of the regulatory capital adequacy ratio and issuer rating, we find that this positive correlation is significantly weakened as a bank’s dependence on the balance sheet approach increases. The results suggest that the regulatory capital adequacy ratio based on a bank’s accounting information provides useful information for the evaluation of default risk but that rating agencies discount capital information that relies heavily on the balance sheet approach when estimating a bank’s default risk.

A Marginal Indemnity Function Approach to Optimal Reinsurance under the Vajda Condition

To manage the risk of insurance companies, a reinsurance transaction is among the myriad risk management mechanisms the top ranked choice. In this paper, we study the design of optimal reinsurance contracts within a risk measure minimization framework and subject to the Vajda condition. The Vajda condition requires the reinsurer to take an increasing proportion of the loss when it increases and therefore imposes constraints on the indemnity function. The distortion-risk-measure-based objective function is very generic, and allows for various constraints, an objective to minimize the risk-adjusted value of the insurer's liability, and for heterogeneous beliefs regarding the distribution function of the underlying loss by the insurer and reinsurer. Under a mild condition, we propose a backward-forward optimization method that is based on a marginal indemnification function formulation. To show the applicability and simplicity of our strategy, we provide three concrete examples with the VaR: one with the risk-adjusted value of the insurer's liability, one with an objective function that follows from imposing Pareto-optimality, and one with heterogeneous beliefs.

A Large-Scale Optimization Model for Replicating Portfolios in the Life Insurance Industry

Replicating Portfolios for Economic Capital Calculations

Financial Distress Analysis in an Indonesian Textile Company

This research aimed to examine the health of textile companies by using the Altman Z-Score method. The Altman model is used to determine the effect on financial distress through Working Capital to Total Asset (WCTA), Retained Earning to Total Asset (RETA), Earning Before Interest and Tax to Total Asset (EBITA), Market Value of Equity to Book Value of Liabilities (MVEBL) and Sales to Total Asset (STA). The population in this study was textile companies for the period 2016-2019. The sample was 14 textile companies with a research time of 4 years resulting in 56 samples obtained by purposive sampling. The results indicated that WCTA, RETA, EBITA, MVEBL and STA had a simultaneous effect on financial distress, but they had no effect separately.
 Keywords: Altman Z-Score, financial distress, bankruptcy

Rational Attention Allocation in the Mortgage Market

We propose a structural mortgage prepayment model, where mortgage holders have to allocate costly attention to implement prepayment decisions, and apply the model to US prime mortgages. Our empirical results suggest that commonly observed refinancing mistakes, such as choosing a financially suboptimal refinancing rate by waiting for too long, can be optimal responses of borrowers who allocate their attention rationally. We find that financial sophistication and experience in refinancing reduce costs for attention, while additional financial obligations cause the opposite. Compared to a situation without costs for attention, we estimate that the rational allocation of costly attention increases the value of liabilities by $4,214 for a median mortgage. We find that after the Great Financial Crisis, both the costs for attention as well as the impact of financial sophistication, experience in refinancing and additional financial obligations on the costs for attention increase. The increase of the costs for attention leads to an additional increase of the value of liabilities of 15% after the Great Financial Crisis. Our results have implications for the effectiveness of monetary policy transmission, especially, following an economic crisis.

On the spontaneous combustion liability of South African coal: a report

ABSTRACT Coal fires around the world are challenging and recurrent problems anywhere coal is being mined, processed, stored and transported. Coal spontaneous combustion (SPONCOM) is the reason behind most of these fires. Therefore, when taking preventive actions against the risk of coal fires, it is essential to evaluate their degree of liability to avoid the loss of valuable and unrenewable resources acquired by the mine. The self-heating characteristics of coal is an issue that concerns the mining industry not only in South Africa but also in many other countries. This study reports the database of SPONCOM liability of 442 coal samples collected at various coalfields in South Africa between 2010 and 2020 using the Wits-Ehac testing method. The Wits-Ehac test results were found to match with the reports from the Coalfields. Out of the 442 coal samples evaluated, 11 samples had low liability values, 306 samples had moderate liability values, while 125 samples had high liability. The system for classifying the liability of coal samples toward SPONCOM in this study is very generic, works well for coalfields in South Africa and would be useful for planners and field engineers to take corrective steps in advance to prevent mine fires from occurring.

Stock price reaction to the drug development setbacks in the pharmaceutical industry.

Investments in pharmaceutical companies remain challenging due to the inherent uncertainties of risk assessment. Our paper aims to assess the impact of the drug development setbacks (DDS) on the stock price of pharmaceutical companies while taking into account the company's financial situation, pipeline size and trend of the stock price before the DDS. The model-based clustering based on finite Gaussian mixture modeling was employed to identify the clusters of pharmaceutical companies with homogenous parameters. An artificial neural network was constructed to aid the prediction of the positive mean rate of return 120days after the DDS. Our results reveal that a higher pipeline size and a lower rate of return before the DDS, as well as a lower ratio of the market value of the equity and the book value of the total liabilities, are associated with a positive mean rate of return 120days after the DDS. In general, the DDS have a negative impact on the company's stock price, but this risk can be minimized by investors choosing the companies that satisfy certain criteria. Graphical abstract The higher pipeline size(spip) and lower rate of return before (srr) the drug development setback (DDS) and the Market Value of Equity/Book Value of Total Liabilities ratio (sx4) are associated with a positive mean rate of return 120days after the DDS.

Par Munis -- Sub-Par Performance

It is well recognized that institutional municipal portfolio managers prefer premium bonds to those selling near par. We show that such aversion to par bonds is justified, because they are expected to underperform comparable premium or discount bonds in the near term. The extent of the underperformance depends on the shape of the yield curve, and it is positively correlated with the level of expected interest rate volatility. The underperformance is due to tax considerations. When a municipal bond is purchased below par, the resulting gain is taxed at maturity, and the price is depressed by the present value of this tax. Due to this tax effect, the interest rate sensitivity of discount munis is amplified. Munis selling near par are also negatively convex; the potential decline due to higher interest rates exceeds the increase due to commensurately lower rates. The underperformance of near-par munis relative to those selling at a high premium or at a deep discount is due to the resulting combination of extended duration and negative convexity. The changing value of tax liabilities creates a unique challenge in determining interest rate sensitivity and expected return, which conventional analytics fail to recognize. The tax-neutral analytics used in this paper incorporate the value of future tax costs, and provide an accurate method for predicting municipal bond price changes and investment returns.

Fair dynamic valuation of insurance liabilities via convex hedging

A general class of fair dynamic valuations, which are model-consistent (mark-to-model), market-consistent (mark-to-market) and time-consistent, was introduced by Barigou et al. (2019) in a multi-period setting. In this paper, we generalize the convex hedging approach proposed in Dhaene et al. (2017) to a multi-period framework and investigate the realization of fair dynamic valuations via a convex hedge-based (CHB) approach. We show that the classes of fair dynamic valuations and CHB dynamic valuations are equivalent. Moreover, we show how to implement the CHB dynamic valuations based on two specific classes of convex hedging techniques, i.e. the quadratic and exponential convex hedging.

APPLICATION OF FAIR VALUE IN THE ACCOUNTING, CONTROL AND REPORTING FOR UKRAINE IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS

One of the key and most controversial accounting and control issues is the measurement of the elements of financial statements. The question of determining the fair value of assets and liabilities is one of the most relevant in modern accounting practice. This type of measurement is currently the subject of heated debate in the accounting community. International Financial Reporting Standards proceed from the priority of the interests of users of financial statements and are essentially aimed at providing them with the most relevant and useful information. This message determines the logic of building standards. IFRS 13 «Fair Value Measurement» considers fair value measurements in a broad sense, concentrating on the definition of fair value and the principles for measuring it. The main problem arising in the process of applying the fair value estimate is the lack of a methodology for its calculation. The article reveals the factors that influence the process of determination fair value. An algorithm in the selection of fair value valuation methods for management accounting is proposed, which allows quickly and timely determine the real value of accounting items and financial reporting elements, as well as a hierarchy of sources of fair value, which is represented by three levels. Level I is distinguished by the lowest degree of subjectivity in the measurement of assets and liabilities, Level II is characterized by a greater degree of subjectivity in the measurement of assets and liabilities, Level III is associated with the greatest degree of subjectivity in the measurement of assets and liabilities. The choice and proper use of the fair value method requires a high level of qualification in the field of appraisal, in-depth knowledge of the asset being valued, a liability or business, as well as the wide application of professional judgment. Historical cost and fair value provide two different kinds of information, which are both useful to investors. A dual measurement and reporting model could be more effective for assessing the success of an investment. Financial statements are more reliable, the more adequately it reflects the financial situation and financial results of the company. It is very important in the preparation of financial statements to apply various methods of measurement of assets and liabilities that are relevant to the company at the moment. Both historical cost and fair value should be provided as only together they can deliver complete and useful information to investors.

The aporetic financialisation of insurance liabilities: Reserving under Solvency II

AbstractThe valuation of insurance liabilities has traditionally been dealt with by actuaries, who closely monitored underlying illiquid features, assumed a long-term perspective, and exercised their own subjective, expert judgment. However, the new EU regulatory regime of Solvency II (S2) has come to require market-consistent valuation supplemented by a risk-sensitive capital. This is considered an unwanted shift towards short-termism that is misaligned with the industry's long term and countercyclical character. The new principles place the ‘technicalising’ logic of financial economics over ‘contextualising’ actuarial know-how. Following existing analytics of valuation from the ethnography of reinsurance markets and the social studies of finance, such requirements appear either as an alarming attack against the actuarial component of traditional valuation practice, or else as a preserver of it, through a process of enfolding at the heart of the financialisation project. This article holds that the case of S2 challenges both these analytics of valuation. S2’s financialisation project, precisely by attempting to construct itself, deconstructs itself into an actuarial project, in a recurring, aporetic process. In this respect, fair (or otherwise) valuation remains always undecidable, inconclusive, and thus responsible.

Unverifiable Net Assets Ratio and Annual Report Reading Difficulty

The Financial Accounting Standards Board (FASB) has greatly expanded the use of fair value instruments, which amplifies an increase of unverifiable assets and liabilities that do not have actively traded market prices. Prior research indicates that managers may have strong incentives to use discretion in estimating fair values of such assets and liabilities for his/her self-serving interests, leading to more agency conflicts. This study examines the impact of unverifiable net assets on reading difficulty of annual reports. We predict that annual reports of firms with more unverifiable assets and liabilities are more difficult to read because prior research links agency conflicts to increased reading difficulty. Our results show a significant positive relation between unverifiable net assets and reading difficulty, consistent with the agency theory. Our study has implications for revenue management because prior research links earnings management to annual report readability.

The Spontaneous Combustion of Chemically Activated Carbons from South African Coal Waste

ABSTRACT A spontaneous combustion test termed the Wits-Ehac test was used to examine the spontaneous combustion liability of activated carbons prepared using KOH activation from three coal waste samples obtained in South African Coalfield. The effect of KOH addition on the activated carbon textural characteristics, physicochemical properties, and self-heating characteristics was investigated. The textural properties such as pore volume and surface area were evaluated using the nitrogen gas adsorption method. The morphological effect of the activated carbons on their liability toward spontaneous combustion was studied. The results showed that, with increased KOH weight ratio, the pore volume, and surface area of the activated carbon increased. The influence of KOH addition decreases the volatile matter, while the influence either increases/decreases the moisture, ash, or fixed carbon contents of the activated carbons. In addition, an increase in the KOH weight ratio increases the liability values of the activated carbons. The liability of activated carbon depends not only on the origin of the coal material but also on the volume of pore and surface area, which also depends on the quantity of KOH used during the preparation process. This study provides a scientific basis for a simple test to establish whether pore volume and surface area of activated carbon can promote its propensity to self-heating.

Tort Immunity in the Pandemic

A fundamental premise of our common law tort system is that the risk of liability will help deter unsafe behavior. Yet, as we continue to battle the COVID-19 pandemic, proposals abound to shield businesses from tort liability. Politicians have even conditioned fiscal-stimulus for our ailing economy on passage of tort liability shields. This essay examines the pros and cons of such shields, and concludes that their questionable benefits do not justify loss of the deterrent value of tort liability. Although businesses would surely prefer to avoid lawsuits, those that act reasonably--even without tort immunity--face little risk of damage judgments and would be hard prey for plaintiff personal-injury lawyers. To be found negligent, businesses would need to flaunt such basic precautions as social distancing, gloves, masks and disinfecting measures. Presumably, we should not encourage such behavior by removing the tort system’s incentives to operate safely. And even if a business arguably could have done more to keep their customers and employees safe, plaintiffs would still have the tall burden of establishing causation--that they caught the disease because of the defendant’s neglect as opposed to other sources. Beyond all that, businesses already enjoy the protection of workers’ compensation laws, and strong defenses like regulatory compliance. On the other side of the equation, creating immunity shields may signal to employees and customers that they return to work or patronize business at their own peril--creating an anxiety that undermines the trust and confidence we want to instill to restart of our economy. Finally, other systems, such as insurance and government compensation funds, can be used to encourage businesses to reopen and stay open.

Foreign Direct Investment in Poland and Changes in the Branch Structure

Purpose: The aim of the work is to present changes in the inflow of foreign direct investments (FDI) to Poland, taking into account the structure of the industry. An additional goal is also to indicate the variation in the inflow of capital to industries with a specific degree of technological advancement. Design/Methodology/Approach: The analysis covered the years 2005-2017 to capture, among others the impact of the economic crisis. The analysis for the indicated period was based on data from the National Bank of Poland. Findings: The value of the foreign direct investments flow to Poland varied in 2005-2017. The value of FDI flows in 2008-2010 was similar to that recorded in the years 2014-2016. Three sectors appear to be dominant in cumulative value industrial processing (38.1%), wholesale and retail trade (19.6%) and financial and insurance services (11.7%). The value of foreign capital flow in 2005-2017 into particular types of business activities changed in both absolute and relative terms. The aggregated value of liabilities due to FDI in the sector of high and medium-high tech tended to rise up to a point where it was higher in 2017 than the value in the low-tech sector. Practical Implications: The results of the research indicate which sectors attract foreign capital the most and to what extent the inflow of capital to a given country reflects the behavior of investors on the global market. Originality/Value: The study confirms the need to monitor FDI in individual sectors. It is possible, based on forecasts of changes in the economic situation in the world, to predict the behavior of investors in individual markets.

Учет и аудит активов и обязательств, используемых при ведении деятельности за границей

The relevance of the topic is due to changes in PBU 3/2006 "Accounting for assets and liabilities denominated in foreign currency", according to which, from 01.01.2019, all assets and liabilities denominated in foreign currency used by an organization to conduct business outside the Russian Federation are subject to conversion into rubles at the exchange rate of the Central Bank of the Russian Federation on the reporting date for the purpose of accounting. This raises the question of the mechanism of the difference arising from the results of recalculation of the value of foreign assets and liabilities, and its reflection in accounting. In the work proposed and illustrated by examples of recommendations to address the above-mentioned difference in specially designed for this purpose, the register. It also provides recommendations on accounting for transactions with non-monetary items used in activities outside the Russian Federation, expressed in rubles.

PENGARUH FINANCIAL DISTRESS TERHADAP RETURN SAHAM (STUDI PADA PERUSAHAAN SUBSEKTOR BATUBARA DI BURSA EFEK INDONESIA)

This study aims to determine whether there is an effect of a sector's Financial Distress using the Altman Z-Score method on stock returns. The independent variables used in this study are Working Capital to Total Assets (WCTA), Retained Earning to Total Assets (RETA), Earning before Interest and Taxes to Total Assets (EBITTA), Market Value of Equity to Book Value of Total Liabilities (MVEBTL), Sales to Total Assets (STA) and Altman Z-Score. While the dependent variable in this study is stock returns. The data collection method in this study used purposive sampling on coal companies listed on the Indonesia Stock Exchange during the 2014-2017 period. The total sample used in this study were 18 coal companies. The data analysis method used multiple linear regression analysis. Hypothesis testing using the t test with a significance level of 5%. The results showed that WCTA, EBITTA, MVEBTL, STA, and the Altman Z-Score Category had a positive effect on stock returns, while RETA had a negative effect on stock returns.

Insurer Optimal Asset Allocation in a Small and Closed Economy: The Case of Iran’s Social Security Organization

We seek to determine the optimal amount of the insurer’s investment in all types of assets for a small and closed economy. The goal is to detect the implications and contributions the risk seeker and risk aversion insurer commonly make and the effectiveness in the investment decision. Also, finding the optimum portfolio for each is the main goal of the present study. To this end, we adopted the optimal asset-liability management (ALM) method to control the firm's risk of financial stability and growth by balancing the assets and liabilities of the firm. In the process, stochastic interest rates and inflation risks were taken into account according to the expected utility maximization framework. All assets were established and calculated by the Kalman Filter with the stochastic interest rate following the Hull-White model; an additional stochastic process models the inflation risk. To consider the stochastic process, we employed the geometric Brownian motion in the liability process to ensure a definite liability value. We chose Iran’s Social Security Organization as our sample insurer company since it has a portfolio of five types of assets and four types of liabilities, and operates in a small and closed economy. By Applying the ALM method with the stochastic control theory approach, we acquire the optimal investment strategies for insurers to minimize their risk. Our findings demonstrate the effects of model parameters, such as the degree of risk-taking on the insurer decision.

ANALYSIS OF THE BALANCE SHEET FROM THE ASPECT OF BUILT-IN ESTIMATES

The balance sheet should present the financial position of the company truthfully and objectively. The presentation of the balance sheet requires the use of the best possible estimates and reasonable assumptions that are reflected in the value of the balance sheet items. Estimates are based on historical and other available information at date of the balance sheet. Each estimate carries a risk with an outcome in materially significant adjustments to the present value of assets, liabilities, incomes and expenses in the next financial year. In the absence of a precise method of measurement, an assessment of the financial statement items is made. The use of adequate estimates does not compromise the reliability of the balance sheet. However, due to the uncertainty of business activities and a certain distinctiveness in the understanding of accounting and economic value, balance sheet items may take different values. There are numerous examples of misuse of creative accounting in accounting practice, and when implemented untrue and biased information is published. The motives for such actions are different, ranging from the need of avoiding paying taxes, more profitable business sales, gaining better creditors position and creditors, to the realization of bonuses and management privileges. In addition to management, competent external experts are hired for appraisal work, whose work does not always have to be reliable because an alternative appraiser can be selected or manipulative data can be provided as a basis for assessment. The aim of this paper is to point out the balance sheet items that carry the greatest risks of objective reporting, and to assess the validity of the applied concept (basis) for measurement. The paper also points to possible ways of manipulating the balance sheet: if you want to show a financial result lower than the real one, then the value of assets is shown lower than it really is, and income statement expenses increase, while the situation is reversed if the company wants to show better financial results of the existing ones: then the estimated value of the assets in the balance sheet increases, and the value of the expenses in the income statement decreases. The paper starts from the basic hypothesis that the value assets assessment affects the presentation of the financial position of the company. An important item in the estimates is the assessment of the useful life of fixed assets. These estimates are reviewed annually and changed in accordance with the expected changes and the dynamics of spending the future economic benefits of fixed assets. The hypothesis proof was performed on the example of the analysis of the property position of a large service company for the period from 2004 to 2019. The results indicate that estimates can significantly correct the financial position of the company, and that the analysis of the company should focus on positions that are subject to assessments and that can significantly change the value of the company, instead of cash and liquidity positions that are considered priority in most analysis.