Impact on debt and equity values from exchange

Reference no: EM133415833

Question: Before 1986, Australian companies' unregulated foreign currency accounting practices were diverse. Firms variously recognized exchange rate gains or losses on foreign currency long-term debt: 1. as the exchange rate moved, 2. when the debt was settled, or 3. progressively over the term of the debt. A study tests empirically whether the voluntary accounting policy choices were endogenous to contractual equilibria between claimants against the firm and management. Managers' choices are explained as an efficient means to report the impact on debt and equity values from exchange rate movement effects on the value of investments in foreign currency earning assets domiciled in Australia. Findings indicate that asset specificity and the ratio of firms' investments in assets in place to growth options are significant in explaining the accounting policy choice.

Reference no: EM133415833

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