Determinants and Consequences of Hedge Accounting in Non-Financial Brazilian Companies
DOI:
https://doi.org/10.22561/cvr.v34i1.6862Keywords:
Hedge Accounting, Firm Value, Income Smoothing, CovenantsAbstract
This study aims to investigate determinants and consequences of hedge accounting (HA) as an accounting choice in the Brazilian capital market. It examines a sample of 187 non-financial companies that used derivatives or non-derivatives for risk management from 2010 to 2017. It analyzes three points: whether companies that use HA have their value maximized; whether corporate profits attest to less earnings smoothing practices through HA; whether HA is used to avoid breaches of debt covenants. It is concluded that: the companies with more name of HA presented an increase in value; those that designated more derivative instruments for HA indicated less income smoothing practices. As for the third point, there was a lack of evidence that the violation of covenants determines adoption or a higher level of derivative designation for HA. These findings correspond to HA's objective of being a reliable representation of risk management in financial statements.
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