Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
}
TY - JOUR
T1 - Do fair value adjustments influence dividend policy?
AU - Goncharov, Igor
AU - van Triest, Sander
PY - 2011
Y1 - 2011
N2 - We examine the impact of positive fair value adjustments on dividend policy. If fair value adjustments are transitory in nature and managers are able to assess their implications for future earnings, fair value adjustments in net income is expected to have no distribution consequences. However, positive fair value adjustments may lead to higher dividends when management incorrectly assesses their persistence. This can have a procyclical impact because higher dividends increase leverage, and thus risk. We use a Russian setting that mandates fair value accounting for financial instruments and requires disclosure of unrealised fair value adjustments in income. We find no empirical support for the concern that dividends increase in response to positive fair value adjustments. Rather, there is a negative relationship between positive fair value adjustments and dividend changes, which holds after controlling for dividend policy determinants and any endogenous nature of the revaluation decision. We discuss several possible explanations for this finding.
AB - We examine the impact of positive fair value adjustments on dividend policy. If fair value adjustments are transitory in nature and managers are able to assess their implications for future earnings, fair value adjustments in net income is expected to have no distribution consequences. However, positive fair value adjustments may lead to higher dividends when management incorrectly assesses their persistence. This can have a procyclical impact because higher dividends increase leverage, and thus risk. We use a Russian setting that mandates fair value accounting for financial instruments and requires disclosure of unrealised fair value adjustments in income. We find no empirical support for the concern that dividends increase in response to positive fair value adjustments. Rather, there is a negative relationship between positive fair value adjustments and dividend changes, which holds after controlling for dividend policy determinants and any endogenous nature of the revaluation decision. We discuss several possible explanations for this finding.
KW - fair value accounting
KW - dividend policy
KW - earnings persistence
KW - SHARE PRICES
KW - INTANGIBLE ASSETS
KW - AGENCY COSTS
KW - FIRM VALUE
KW - MARKET
KW - EARNINGS
KW - INFORMATION
KW - MANAGEMENT
KW - REPURCHASES
KW - ACCRUALS
U2 - 10.1080/00014788.2011.549637
DO - 10.1080/00014788.2011.549637
M3 - Journal article
VL - 41
SP - 51
EP - 68
JO - Accounting and Business Research
JF - Accounting and Business Research
SN - 0001-4788
IS - 1
ER -