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Article
Publication date: 16 July 2020

Dimu Ehalaiye, Mark Tippett and Tony van Zijl

The purpose of this paper is to investigate whether levels-classified fair values of US banks based on SFAS 157: Fair Value Measurements, as recognised in the quarterly financial…

Abstract

Purpose

The purpose of this paper is to investigate whether levels-classified fair values of US banks based on SFAS 157: Fair Value Measurements, as recognised in the quarterly financial statements of the banks over the period from 2008 until 2015, have predictive value in relation to the banks’ future financial performance measured by operating cash flows and earnings over a three-quarter horizon period. In addition, we consider whether the global financial crisis (GFC) impacted the relationship between SFAS 157–based levels‐classified fair values and bank future financial performance.

Design/methodology/approach

We develop hypotheses connecting the net levels-classified bank fair values based on SFAS 157 with banks’ future financial performance. We test the hypotheses by estimating three-period quarters’ ahead forecasting models. We also use these models to test for the impact of the GFC on the relationship between the fair values and future financial performance.

Findings

Our findings suggest that the levels-classified net fair values based on SFAS 157 have predictive value in relation to future cash flows for banks. There is significant variation, across the levels, in the predictive value of levels-classified net fair values for future performance. Our findings indicate that the GFC has limited impact on the predictive value for cash flows, but the GFC had a significant adverse impact on earnings, and, with allowance for the effect of the GFC, the Level 2 net fair values have predictive value for the future earnings.

Originality/value

The study provides the first direct empirical evidence on the relationship between the SFAS 157 levels-classified quarterly bank fair values recognised in publicly available financial statements and banks’ future performance. Our results are consistent with the findings from earlier research (Ehalaiye et al., 2017) using annual data disclosed in the supplementary notes to the financial statements of US banks based on SFAS 107. The study, makes a significant contribution to the question of frequency of reporting and to the disclosure vs recognition debate. The study has implications for policy makers, regulators and accounting standards setters such as the Securities and Exchange Commission and the Financial Accounting Standards Board in evaluating the use of fair value measurement in financial reporting.

Details

International Journal of Accounting & Information Management, vol. 28 no. 4
Type: Research Article
ISSN: 1834-7649

Keywords

Abstract

Details

Energy Power Risk
Type: Book
ISBN: 978-1-78743-527-8

Book part
Publication date: 23 August 2014

Donald K. Clancy and Francisco J. Román

Extending the work of Bayou (2001), we empirically investigate the relationship between firm size and resource productivity to assess whether the productivity of resources (value

Abstract

Purpose

Extending the work of Bayou (2001), we empirically investigate the relationship between firm size and resource productivity to assess whether the productivity of resources (value in use) and their underlying value at sale (value in sale) vary with firm’s size.

Methodology

We use seemingly unrelated regression of revenues and equity values on assets and employees for a large sample over a wide time period and across all industries. We compare companies that are growing, declining, or continuing in size relative to their industry.

Findings

With some variability on growth, we find that smaller companies hold more productive resources based on their capacity to generate more revenues per unit of resources (assets) relative to large companies. Further, as predicted, a firm’s workforce has productive value in use, but limited value after a firm’s sale as measured by equity values.

Practical implications

Collectively, our findings suggest that firm size matters in influencing resource productivity, and a workforce has productive value in use, but low value in sale.

Details

Advances in Management Accounting
Type: Book
ISBN: 978-1-78190-842-6

Keywords

Article
Publication date: 1 July 2005

Kamran Ahmed, A. John Goodwin and Kim R. Sawyer

This study examines the value relevance of recognised and disclosed revaluations of land and buildings for a large sample of Australian firms from 1993 through 1997. In contrast…

Abstract

This study examines the value relevance of recognised and disclosed revaluations of land and buildings for a large sample of Australian firms from 1993 through 1997. In contrast to prior research, we control for risk and cyclical effects and find no difference between recognised and disclosed revaluations, using yearly‐cross‐sectional and pooled regressions and using both market and non‐market dependent variables. We also find only weak evidence that revaluations of recognised and disclosed land and buildings are value relevant.

Details

Pacific Accounting Review, vol. 17 no. 2
Type: Research Article
ISSN: 0114-0582

Keywords

Open Access
Article
Publication date: 11 August 2021

Justice Mensah

Scholarly discourses regarding heritage values for sustainable heritage management abound in heritage literature but appear elitist as they tend to exclude the perspectives of the…

2505

Abstract

Purpose

Scholarly discourses regarding heritage values for sustainable heritage management abound in heritage literature but appear elitist as they tend to exclude the perspectives of the people at the lower echelons of society. The study explored the values ascribed to a global heritage monument by the people living around a global heritage site in Ghana and the implications of their perceptual values for sustainable heritage management.

Design/methodology/approach

This study used the qualitative design. It was guided by Costin’s heritage values, community attachment theory and values-based approach to heritage management. Data was gathered from the local people living close to the heritage site, and the staff of Museums and Monuments Board at the heritage site. Data were gathered through focus group discussions and in-depth interviews and analysed using the thematic approach and most significant stories.

Findings

The results revealed that the local people were aware of the economic, aesthetic, historic, symbolic and informational values of the heritage monument but showed little attachment to the monument. The main reasons for the low attachment were the limited opportunity for them to participate in the management of the monument, and the limited opportunity for direct economic benefits from the heritage asset.

Research limitations/implications

A comprehensive understanding of heritage monument management that reflects the perspectives and values of the local people is imperative.

Practical implications

United Nations Education, Scientific and Cultural Organisation and Ghana Museums and Monuments Board could consider a more community-inclusive heritage management framework that takes cognizance of local values and perspectives to ensure sustainable heritage management and development.

Social implications

The values and perspectives of the local community matter in heritage management. The heritage authorities need to engage more with the community people and educate them on the best practices regarding the sustainable management of World Heritage Sites.

Originality/value

This paper argues that the management of global heritage sites should not be elitist in orientation and character. It should respect the principle of community participation for inclusive development.

Open Access
Article
Publication date: 3 July 2023

Marco Botta

The paper investigates if the process that led to the birth of the Euro Area had a significant impact in homogenizing the capital structure decisions of European firms since the…

Abstract

Purpose

The paper investigates if the process that led to the birth of the Euro Area had a significant impact in homogenizing the capital structure decisions of European firms since the first introduction of the common currency.

Design/methodology/approach

A large sample of firms was constructed, and a Tobit-censored regression model was utilized to investigate the determinants of firms' observed capital structures. The Black–Scholes–Merton model was used to infer market values of assets, as well as the volatility of those values, from the observed market values of equity and the corresponding volatility. The existing differences in national tax rules were considered for estimating firm-specific marginal tax rates.

Findings

It was found that, despite the currency union and the institutional harmonization process, certain factors still play a different role. In particular, the impact of profitability is consistent with the pecking order view in some countries, and with the trade-off theory in others. Assets risk, measured as the annualized volatility of the market enterprise value, is the best predictor of observed leverage ratios. The sector of activity is significant in determining leverage decisions even when assets' risk is taken into account. Despite the monetary union and the increased financial and institutional integration in the Euro Area, the country of origin still plays a significant role in capital structure decisions, suggesting that other country-level factors may affect firms' financing behaviour.

Practical implications

The paper indicates that, despite the long harmonization process of institutions, regulations and public budget required to join the Euro, firms' financing decisions are still affected by country-specific factors once the common currency is introduced. Therefore, new entrant countries in the Euro area should not expect their companies to immediately conform with those located in other countries within the common currency area.

Originality/value

This article investigated the impact of the currency change from national currencies to the Euro on the determinants of capital structure choices. It was shown that, despite the long harmonization process that led to the birth of the Euro Area, national factors still affect firms' financing decisions. This provides guidance for policymakers in countries that are planning to join the Euro about the impact this will have on firms' financing decisions in the entrant country.

Details

International Journal of Managerial Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 8 May 2009

Ashok K. Mishra, Charles B. Moss and Kenneth W. Erickson

The purpose of this paper is to use the DuPont expansion to examine those factors underlying differences in (rates of) return on different crop portfolios over space (ten regions…

1002

Abstract

Purpose

The purpose of this paper is to use the DuPont expansion to examine those factors underlying differences in (rates of) return on different crop portfolios over space (ten regions) and time (1960‐2004). The paper also estimates the impact of government payments on farmland values through its impact on farm profitability.

Design/methodology/approach

Businesses use the DuPont model to analyze the profitability of a business. This model includes three components: net profit margin, asset turnover, and financial leverage (or assets to equity). It is based on the relationships among these three components and is expressed as a product of ratios. For the purposes of the current study, accrued capital gains from (total) returns are excluded to focus on cash returns “cash flow”. Returns from current income are a “cash flow” available in the short run to pay financial obligations. Furthermore, returns from capital gains are not liquid; they are gains in wealth fully captured as capital gains/losses only in the longer term. Following the DuPont approach, the effect of government payments on farm asset values is equal to the sum of the effect of government payments on profit margins plus the effect of government payments on the asset turnover ratio.

Findings

The analysis focuses on agricultural profitability in the ten Economic Research Service (ERS) regions. By comparing the components of the DuPont expansion, profitability differences over time are analyzed. The results indicate that one cause of low profitability in the Corn Belt and Mountain regions is a perpetually low profit margin while the evidence for other regions supports lower asset efficiency. Results show that government payments impact the profit margin and affect value of farm assets in particular farmland values but not asset turnover ratio.

Originality/value

The use of DuPont expansion factor in agriculture is original and really helps us to understand the factors driving profitability in agriculture. Another innovation (originality) in this paper is the theoretical model that connects the DuPont expansion factor, government payments and its impact on farmland values.

Details

Agricultural Finance Review, vol. 69 no. 1
Type: Research Article
ISSN: 0002-1466

Keywords

Article
Publication date: 9 November 2020

Rick C. Warne

This paper examines the impact that fair-value recognition of non-financial assets has on the judgments of commercial lenders.

Abstract

Purpose

This paper examines the impact that fair-value recognition of non-financial assets has on the judgments of commercial lenders.

Design/methodology/approach

Commercial lenders, who were attending a national banking conference, participated in a controlled experiment.

Findings

The experimental results show that commercial lenders incorporate fair values into their judgments but only when this information is recognized (vs disclosed) on the financial statements. Additionally, lenders assigned the highest loan interest rates when recognized fair values increased net income, and they assign the lowest loan amounts when recognized fair values decreased net income.

Research limitations/implications

Typical limitations regarding behavioral experiments are acknowledged in the paper. For example, the commercial lenders in this study could not request additional information. In addition, because of the difficulty in obtaining these participants, the sample size is relatively small.

Practical implications

US Generally Accepted Accounting Principles (GAAP) does not allow the fair-market valuation for most non-current assets while International Financial Reporting Standards (IFRS) require such valuations. The article adds to our understanding about how a significant user group of financial statements, commercial lenders, view GAAP and IFRS accounting.

Social implications

This article provides insights regarding how commercial lenders' decisions may change based on accounting principles related to asset valuation. Obtaining credit through loans has significant implications for society.

Originality/value

This article is unique because it examines commercial lenders' judgments using different asset valuations on the financial statements.

Details

Asian Review of Accounting, vol. 29 no. 1
Type: Research Article
ISSN: 1321-7348

Keywords

Article
Publication date: 1 July 1997

P.J. Stanton and P.A. Stanton

Neo‐classical economic theory provides the framework for general purpose financial reports prepared by Australian government departments and their agencies. These reports, which…

2900

Abstract

Neo‐classical economic theory provides the framework for general purpose financial reports prepared by Australian government departments and their agencies. These reports, which include a statement of financial position (financial worth) and an operating statement (an estimate of the return on the investment), have an economic rationale: the information is intended to guide the allocation of scarce government resources. All government assets, including those held for their cultural, historical or environmental values (heritage assets) are to be valued utilizing the neo‐classical theory of value. Argues that the accounting exercise is flawed. Measurement of value‐in‐use or value‐in‐exchange of heritage assets is inherently subjective, ignoring institutional conditions and non‐use values. The accounting approach fails to measure either the service value or economic benefits of governmental heritage assets. Consequently, the information generated is inconsistent with the economic rationale and the valuation process may prejudice any assessment of the performance of entities responsible for these assets. There is a strong case for either widening the concept of value to include non‐use values or abandoning the measurement of heritage assets.

Details

International Journal of Social Economics, vol. 24 no. 7/8/9
Type: Research Article
ISSN: 0306-8293

Keywords

Abstract

Details

The Banking Sector Under Financial Stability
Type: Book
ISBN: 978-1-78769-681-5

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