 Asymmetric effects of fair value adjustments on dividend policyAlexandros Sikalidis, Konstantinos Bozos and Georgios Voulgaris International Review of Financial Analysis, 2023, vol. 90, issue C Abstract: We examine the effect of unrealized fair value adjustments resulting from derivatives classified as cash flow hedges on the dividend policy of UK firms. We theorise and empirically demonstrate that companies differentiate between positive and negative fair value adjustments. When unrealised gains are recorded under ‘Other comprehensive income’ firms do not increase dividend payouts; as such it can be argued that legal requirements surpass potential signaling considerations. However, for unrealized losses, firms reduce their dividend payouts, even when regulatory arrangements do not necessarily mandate this. Furthermore, firms adjust their dividends based on unrealized losses under different levels of firm risk, future growth opportunities and financial distress. Overall, our findings suggest that managers display a conservative behavior aiming to safeguard company assets, by effectively treating unrealized gains as ‘transitory’ and unrealised losses as ‘persistent’. Keywords: Dividend policy; Fair value accounting; Fair value adjustments; Other Comprehensive Income; Conservativism (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:90:y:2023:i:c:s1057521923004490 DOI: 10.1016/j.irfa.2023.102933 Access Statistics for this article International Review of Financial Analysis is currently edited by B.M. Lucey More articles in International Review of Financial Analysis from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.