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When Do Accounting Earnings Matter More than Economic Earnings? Evidence from Hedge Accounting Restatements
Author(s) -
Hughen Linda
Publication year - 2010
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.2010.02216.x
Subject(s) - earnings response coefficient , earnings , accounting , economics , post earnings announcement drift , volatility (finance) , earnings management , hedge , financial economics , monetary economics , ecology , biology
This study examines behavior following a change in accounting treatment for derivative hedges due to the misapplication of hedge accounting. I examine firms faced with the following choice; one, maintain stability in economic earnings but increase the volatility of accounting earnings or two, maintain stability in accounting earnings but increase the volatility in economic earnings. I find that firms’ historic abilities to meet earnings targets are positively associated with the likelihood that firms will focus on accounting earnings rather than economic earnings. Results provide evidence of a change in management behavior following a change in accounting method.