When Do Accounting Earnings Matter More than Economic Earnings? Evidence from Hedge Accounting Restatements

Linda Hughen

Journal of Business Finance & Accounting, 2010, vol. 37, issue 9‐10, 1027-1056

Abstract: Abstract: This study examines behavior following a change in accounting treatment for derivative hedges due to the misapplication of hedge accounting. I examine firms faced with the following choice; one, maintain stability in economic earnings but increase the volatility of accounting earnings or two, maintain stability in accounting earnings but increase the volatility in economic earnings. I find that firms’ historic abilities to meet earnings targets are positively associated with the likelihood that firms will focus on accounting earnings rather than economic earnings. Results provide evidence of a change in management behavior following a change in accounting method.

Date: 2010
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https://doi.org/10.1111/j.1468-5957.2010.02216.x

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