Douglas Augusto De Paula
Master's – Hedge Accounting Adoption: Impacts and Potential Determinants
Advisor: Prof. Dr. Luiz Nelson Guedes de Carvalho
Comission: rofs. Drs. Fernando Dal-Ri Murcia, Fernando Chiqueto da Silva and Fernando Caio Galdi
Class: 217, FEA-5
This study aimed to analyze the accounting choice of hedge accounting in the Brazilian market. In Hypothesis 1 it is investigated if the companies that designate a greater volume of instruments for hedge accounting present higher value of the firm. The literature on hedge determinants maps as the main objective the optimization of the firm's value in function of the management of corporate risks. However, there is still little empirical evidence on how to hedge accounting standards. Aiming to address such questioning, a sample of the years 2010 to 2017 was composed with companies that have used derivatives or natural hedge in at least one of the years. By means of these data the companies were divided into clusters considering the average level of hedge accounting designation in relation to the total of derivatives and natural hedge and analyzed the influence on firm value. The main results obtained were that the companies that are in the cluster that presents a higher level of hedge accounting designation in the periods have a positive and significant relationship with the higher valuation of the firm's value. This relationship was not found either in the simple use of the hedge accounting policy or in the continuous variable of the hedge accounting volume ratio in relation to the volume of derivatives contracted. In Hypothesis 2, it is verified that companies that soften the results through discretionary accumulations present a smaller volume of designation of instruments for hedge accounting, through an analysis with companies that used derivatives between the years of 2010 to 2017 were found evidences that the companies which adopt a higher volume or the practice of hedge accounting have a lower practice of smoothing the results, these findings corroborate results found by Tessema and Deumes (2018), which identified that companies that had ineffectiveness of hedge accounting had greater smoothing practices of compared to those who were perfect hedgers. In hypothesis 3, the accounting choice of hedge accounting adoption was analyzed as a result of the covenants violation, as was widely studied in the accounting choices literature. (Watts and Zimmerman 1986, Smith and Warner, 1979 and Holthausen and Leftwich, 1983). In this hypothesis, based on these results, the only model in which Covenants Proximity presented significance was by level of hedge accouting and with the nondegree variable, but with a negative relation, in this way, hypothesis 3 can not be accepted as a determinant for adoption or for the higher level of adoption of derivatives for accounting purposes. hedge As an additional analysis were found 66 companies that used cash flow hedge and had clauses of covenants that allowed recalculation in order to identify if some of them no longer violated the clause due to hedge accounting, only two companies were found that were able to meet the covenant clause through the adoption of hedge accounting.
*Abstract provided by the author