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The Value Relevance of Accounting Information during a Financial Crisis: Thailand and the 1997 Decline in the Value of the Baht
Author(s) -
Graham Roger,
King Raymond,
Bailes Jack
Publication year - 2000
Publication title -
journal of international financial management and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.818
H-Index - 37
eISSN - 1467-646X
pISSN - 0954-1314
DOI - 10.1111/1467-646x.00057
Subject(s) - devaluation , currency , economics , earnings , value (mathematics) , speculation , float (project management) , relevance (law) , liberian dollar , monetary economics , business , accounting , finance , management , machine learning , computer science , law , political science
This study addresses whether the financial turmoil surrounding the devaluation of the baht affected the value relevance of Thai accounting information. Our results suggest a decline in the value relevance of Thai book values and earnings following the devaluation. Prior to mid 1997 the Bank of Thailand pegged the value of the baht to a basket of currencies of which 80% was weighted to the US dollar. In response to pressure by currency speculators the bank abandoned its peg on July 2 1997 in favor of a managed float. The devaluation was followed by volatile exchange rates. The change in value relevance of accounting information after the devaluation may be attributable to the initial recognition of foreign exchange losses and the subsequent recognition of foreign exchange gains as exchange rates fell and then recovered.