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Unintended consequences of changing accounting standards: the case of fair value accounting and mandatory dividends

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Unintended consequences of changing accounting standards : the case of fair value accounting and mandatory dividends. / Goncharov, Igor; van Triest, Sander.

In: Abacus, Vol. 50, No. 3, 09.2014, p. 342-368.

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@article{71ec8f705c72471d98e803492840a4ef,
title = "Unintended consequences of changing accounting standards: the case of fair value accounting and mandatory dividends",
abstract = "A growing body of literature investigates the interaction of changes in accounting standards with institutions such as investor protection laws and corporate governance mechanisms. We examine the unintended consequences of fair value accounting in determining mandated preferred dividends. We study the case of Russian energy conglomerate UES, which had a good corporate governance track record and a consistent dividend history. Following its adoption of fair value accounting, UES reported the highest quarterly profit in world corporate history, but it subsequently omitted dividends for all its shareholders. The case analysis suggests that the transitory nature of fair value adjustments and the interaction with the investment policy were important considerations in justifying the dividend omission. The reduction in preferred dividends was not offset by any capital gains, and led to a wealth transfer from preferred to ordinary shareholders. Thus, requiring the use of fair value accounting when determining the dividend distribution base can lead to unintended consequences and increase agency costs for minority shareholders.",
keywords = "Dividend policy, Fair value accounting , IFRS , Mandatory dividends",
author = "Igor Goncharov and {van Triest}, Sander",
year = "2014",
month = sep,
doi = "10.1111/abac.12033",
language = "English",
volume = "50",
pages = "342--368",
journal = "Abacus",
issn = "0001-3072",
publisher = "Wiley-Blackwell",
number = "3",

}

RIS

TY - JOUR

T1 - Unintended consequences of changing accounting standards

T2 - the case of fair value accounting and mandatory dividends

AU - Goncharov, Igor

AU - van Triest, Sander

PY - 2014/9

Y1 - 2014/9

N2 - A growing body of literature investigates the interaction of changes in accounting standards with institutions such as investor protection laws and corporate governance mechanisms. We examine the unintended consequences of fair value accounting in determining mandated preferred dividends. We study the case of Russian energy conglomerate UES, which had a good corporate governance track record and a consistent dividend history. Following its adoption of fair value accounting, UES reported the highest quarterly profit in world corporate history, but it subsequently omitted dividends for all its shareholders. The case analysis suggests that the transitory nature of fair value adjustments and the interaction with the investment policy were important considerations in justifying the dividend omission. The reduction in preferred dividends was not offset by any capital gains, and led to a wealth transfer from preferred to ordinary shareholders. Thus, requiring the use of fair value accounting when determining the dividend distribution base can lead to unintended consequences and increase agency costs for minority shareholders.

AB - A growing body of literature investigates the interaction of changes in accounting standards with institutions such as investor protection laws and corporate governance mechanisms. We examine the unintended consequences of fair value accounting in determining mandated preferred dividends. We study the case of Russian energy conglomerate UES, which had a good corporate governance track record and a consistent dividend history. Following its adoption of fair value accounting, UES reported the highest quarterly profit in world corporate history, but it subsequently omitted dividends for all its shareholders. The case analysis suggests that the transitory nature of fair value adjustments and the interaction with the investment policy were important considerations in justifying the dividend omission. The reduction in preferred dividends was not offset by any capital gains, and led to a wealth transfer from preferred to ordinary shareholders. Thus, requiring the use of fair value accounting when determining the dividend distribution base can lead to unintended consequences and increase agency costs for minority shareholders.

KW - Dividend policy

KW - Fair value accounting

KW - IFRS

KW - Mandatory dividends

U2 - 10.1111/abac.12033

DO - 10.1111/abac.12033

M3 - Journal article

VL - 50

SP - 342

EP - 368

JO - Abacus

JF - Abacus

SN - 0001-3072

IS - 3

ER -