Hedge Accounting and Market Value of Quoted Manufacturing Firms in Nigeria: Panel Data Evidence
Keywords:
Hedge Accounting, Market Value, Fair Value Hedging, Cash Flow Hedging, Investment Hedging.
Abstract
In a developing economy such as Nigeria, the business environment is characterized with risk that affects the operational efficiency and the performance of quoted firms. There is needed to make policies that will hedge against risk in the operating environment. This study examined the effect of hedge accounting on the market value of quoted oil and gas firms. A sample of 10 oil and gas firms was selected based on data quality and availability to address the requirements of the variables in the regression model. The study modeled market value as linear function of cash flow hedging, investment hedging and fair value hedging. Cross sectional data was sources from financial statement of the selected firms from 2011 to 2016. From the panel data result, (Fixed Effect Model) the study found that cash flow hedging have positive and significant relationship with market value while fair value hedging and investment hedging have positive but not significant relationship with market value of the quoted oil and gas firms. We therefore recommend that hedge accounting policies should be properly integrated to the operational objectives of the firms.
References
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Bolton, M., Chen, H. & Wang, N. (2001).A Unified Theory of Tobin’s q, Corporate Investment, Financing, and Risk Management. The Journal of Finance 3(9),45-89.
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Dan, C.; Gu, H.; Xu, K. (2005). The impact of hedging on stock return and firm value: new evidence from Canadian oil and gas companies. Unpublished paper.
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Gay, D. G., & Nam, J., (1998). The Underinvestment Problem and Corporate Derivatives Use. Financial Management, 4(5),3- 69
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Jin, Y., & Philippe, J., (2016). Firm Value and Hedging: Evidence from the US Oil and Gas producers. The Journal of Finance, 61(2), 62-89.
Jose, M. B., Amiyatosh, P., & Uday, R., (2011). Corporate Hedging, investment and value.4(6), 76-90.
Kelvin, A., Sohnke, M, B., & Gunter, D., (2007). Why hedge? Rationalist for corporate hedging and value implications. The Journal of Risk Finance 8(5), 434-449.
Kyereboah-Coleman, A., (2007). The impact of capital structure on the performance of microfinance institutions. Journal of Risk Finance, 8 (7),56-71.
Lailly, P., (2011). Hedge Accounting Disclosure Under /AS 39 and IFR87: Analysis of hedge accounting disclosure policy in the Netherland’s Department of Accountancy, University of Tilburg. 61(2), 62-89.
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Lookman, A., (2004). Does hedging increase firm value? Evidence from oil and gas producing firms. Unpublished paper.
Mayston, D. J., (2002). Tackling TheEndogeneity Problem When Estimating the Relationship between School Spending and Pupils’ Outcome, DFEE Research Report 328, Department Of Education and Skills, London.
Modigliani, F. & Miller, M. (1958). The cost of Capital, Corporation Finance and The Theory of Investment. The American Economic Review, Vol. XLVIII, No. 3
Ngan, N., (2015). Does Hedging Increase firm value? An Examination of Swedish companies. A master Thesis in Lund University.
Ngerebo-a, T. A (2002). Corporate Financial Management 1: The Blueprint Limited, Port Harcourt.
Ogden, J.P., Jen, F.C. & O’Connor, P. F. (2003). Advanced Corporate Finance: Policies and Strategies. Prentice Hall
Pagh, A., (2016). Hedging and firm value in the European Airline industry. Master Thesis Submitted to the Department of Economics and Business Administration. Copenhangen Business School. 61(2), 62-89.
Pandey, I. M., (2015). Financial management (8th ed.). New Delhi: Vikas Publishing House PVT Ltd.
Perez-Gonalez, F., & Hayong, I., (2013). Risk Management and Firm Value. Evidence from Weather Determinants. The Journal of finance, 67(5), 189-217.
Pramborg, B. (2004). Derivatives Hedging, Geographical Diversification, and Firm Market Value. Journal of Multinational Financial Management, 1(4),117-133.
Rossi, J., (2005). Foreign Exchange Exposure, Corporate Financial Policies and the Exchange Rate Regime: Evidence from Brazil. Unpublished paper.
Scholes, M., (1972).The marker for securities: Substitution versus price and the effects of information of share prices. Journal of Business, 4(5), 179-211
Stultz, R,M., (1996). Rethinking Risk Management. Journal of Applied Corporate Finance, 9(3), 258-289.
Aretz, B., & Dufey. (2007).Why hedge? Rationales for corporate hedging and value implications. The Journal of Risk Finance, 8 (5), 434-449
Bartram, S. M. (2000).Corporate risk management as a lever for shareholder value creation. Financial Markets, Institutions and Instrument, 9 (5), 279- 324
Bolton, M., Chen, H. & Wang, N. (2001) .A Unified Theory of Tobin’s q, Corporate Investment, Financing, and Risk Management. The Journal of Finance 23( 5),156-179.
Bolton, M., Chen, H. & Wang, N. (2001).A Unified Theory of Tobin’s q, Corporate Investment, Financing, and Risk Management. The Journal of Finance 3(9),45-89.
Carter, D; Rogers, D., Simkins, B. (2006). Does hedging affect firm value? Evidence from the US airline industry. Financial Management, Spring 4(5), 53-86.
Carter, D.A., Daniel, A, R., & Betty, J, S., (2016). Does Hedging affect firm value? Evidence from the US Airline holustry “financial management, 35(1), 1-38.
Chen, Z., Bo, H., & Yeguin, Z., (2015). Does Corporate Financial Risk Management Add Value? Evidence from Cross-Border Merger and Acquisitions. (Retired on 15th, August 2017).
Clark, E.; Judge, A.; Mefteh, S. (2006). Corporate Hedging with Foreign Currency Derivatives and Firm Value. Unpublished paper. 4(5), 45-79.
Dan, C.; Gu, H.; Xu, K. (2005). The impact of hedging on stock return and firm value: new evidence from Canadian oil and gas companies. Unpublished paper.
Eiteman D.K., Stonehill A. I., Moffet M. H., (2004). Multinational Business Finance, PearsonEducation, Pearson Addision Wesley
Froot, K., Schrfstein, D., Stein, J. (1993). Risk Management: Coordinating Corporate Investment and Financing Policies. The Journal of Finance,. 4(8),1629-1658.
Gay, D. G., & Nam, J., (1998). The Underinvestment Problem and Corporate Derivatives Use. Financial Management, 4(5),3- 69
Gilje, E., & Jerome, T., (2015). Does Hedging affect firm value? Evidence from a National Experiment (Retrieved on 16th August, 2017).
Glaum, M., & Klocker, A., (2011). When the tail wags the dog: Hedge Accounting and its influence on financial hedging. Accounting and Business Research (forthcoming). IAS 39: Financial Instrument, Recognition and Measurement. . London: International Accounting Standards Board
Grossman, S. & Hart, O. (1983) “An Analysis of the Principal- Agent Problem”, Journal of The Econometric Society,(5)1, 17-45
Hagelin, N. (2004). Hedging foreign exchange exposure: risk reduction from transaction and translation hedging. Journal of international Financial Management and Accounting. 15(1) 1-20.
Hagelin, N., (2003).Why firms hedge with currency derivatives: An examination of transaction and translation exposure.Applied Financial Economics, 1(3), 55-69
Harry, A., Alano A., & Yilmaz, G., (2012). The Effect of Hedging on firm Value and performance: Evidence from the non financial UK firms. 61(2), 62-89.
Hausman, J. A., & Taylor, W. E., (1981). Panel Data and Unobservable Individual Effect, Econometrical, 49(6), 1377-1398.
Hayashi, F., (1982). Tobin’s Marginal q and Average q: A Neoclassical Interpretation”, Econometrical, 50(1), 213-224
Jakob, P., (2012). Can Hedging Affect firm’s market value. A study with help of Tobin’s Bachelor thesis within finance economics. Jonbkoping International Business School. 61(2), 62-89.
Jin, Y., & Philippe, J., (2016). Firm Value and Hedging: Evidence from the US Oil and Gas producers. The Journal of Finance, 61(2), 62-89.
Jose, M. B., Amiyatosh, P., & Uday, R., (2011). Corporate Hedging, investment and value.4(6), 76-90.
Kelvin, A., Sohnke, M, B., & Gunter, D., (2007). Why hedge? Rationalist for corporate hedging and value implications. The Journal of Risk Finance 8(5), 434-449.
Kyereboah-Coleman, A., (2007). The impact of capital structure on the performance of microfinance institutions. Journal of Risk Finance, 8 (7),56-71.
Lailly, P., (2011). Hedge Accounting Disclosure Under /AS 39 and IFR87: Analysis of hedge accounting disclosure policy in the Netherland’s Department of Accountancy, University of Tilburg. 61(2), 62-89.
Lawal B, A., Edwin T, K., Monica W, K., & Adisa M, K., (2014). Effects of Capital Structure on Firm’s Performance: Empirical Study of Manufacturing Companies in Nigeria. Journal of Finance and Investment Analysis, 3(4), 39-57.
Lookman, A., (2004). Does hedging increase firm value? Evidence from oil and gas producing firms. Unpublished paper.
Mayston, D. J., (2002). Tackling TheEndogeneity Problem When Estimating the Relationship between School Spending and Pupils’ Outcome, DFEE Research Report 328, Department Of Education and Skills, London.
Modigliani, F. & Miller, M. (1958). The cost of Capital, Corporation Finance and The Theory of Investment. The American Economic Review, Vol. XLVIII, No. 3
Ngan, N., (2015). Does Hedging Increase firm value? An Examination of Swedish companies. A master Thesis in Lund University.
Ngerebo-a, T. A (2002). Corporate Financial Management 1: The Blueprint Limited, Port Harcourt.
Ogden, J.P., Jen, F.C. & O’Connor, P. F. (2003). Advanced Corporate Finance: Policies and Strategies. Prentice Hall
Pagh, A., (2016). Hedging and firm value in the European Airline industry. Master Thesis Submitted to the Department of Economics and Business Administration. Copenhangen Business School. 61(2), 62-89.
Pandey, I. M., (2015). Financial management (8th ed.). New Delhi: Vikas Publishing House PVT Ltd.
Perez-Gonalez, F., & Hayong, I., (2013). Risk Management and Firm Value. Evidence from Weather Determinants. The Journal of finance, 67(5), 189-217.
Pramborg, B. (2004). Derivatives Hedging, Geographical Diversification, and Firm Market Value. Journal of Multinational Financial Management, 1(4),117-133.
Rossi, J., (2005). Foreign Exchange Exposure, Corporate Financial Policies and the Exchange Rate Regime: Evidence from Brazil. Unpublished paper.
Scholes, M., (1972).The marker for securities: Substitution versus price and the effects of information of share prices. Journal of Business, 4(5), 179-211
Stultz, R,M., (1996). Rethinking Risk Management. Journal of Applied Corporate Finance, 9(3), 258-289.
Published
2018-01-07
How to Cite
Captain Briggs, A. (2018). Hedge Accounting and Market Value of Quoted Manufacturing Firms in Nigeria: Panel Data Evidence. International Journal of Accounting & Finance Review, 2(1), 21-38. https://doi.org/10.46281/ijafr.v2i1.20
Section
Regular Research Article/ Short Communication Article
Copyright (c) 2018 Alasin Captain Briggs
This work is licensed under a Creative Commons Attribution 4.0 International License.
