Balance sheet classification of compound financial instruments and the judgment of securities market analysts

Jorge Vieira da Costa (), Alfredo Sarlo Neto and Andrea Bispo da Silva
Additional contact information
Jorge Vieira da Costa: State University of Rio de Janeiro, Brazil.
Alfredo Sarlo Neto: Federal University of Espírito Santo, Brazil.
Andrea Bispo da Silva: State University of Rio de Janeiro, Brazil.

Journal of Economic and Financial Studies (JEFS), 2016, vol. 4, issue 5, 37-54

Abstract: This paper investigates the effect of balance sheet classification of a compound financial instrument on the analyst’s judgment on estimates in target prices using an experimental setting. The experimental design involves both buy and sales-side analysts grouped into three subsamples with limited information set about the company used in the experiment and different information regarding the accounting for the compound financial instrument (IAS 32 model, SOA model and NEA model) after the following event: a private placement of a mandatorily convertible debenture to finance the acquisition of another company abroad. We apply nonparametric means and bootstrap test. Our result show that regardless of balance sheet classification of the compound financial instrument, analysts are likely to treat it conservatively as a liability. Moreover, if the compound financial instrument is wholly classified as a liability and the company is highly leveraged, they tend to discount firm’s share price.

Keywords: Balance-sheet management; Compound financial instrument; IAS n. 32; Securities market analyst. (search for similar items in EconPapers)
JEL-codes: M40 M48 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.journalofeconomics.org/index.php/site/article/view/264/303 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:lrc:lareco:v:4:y:2016:i:5:p:37-54

Access Statistics for this article

More articles in Journal of Economic and Financial Studies (JEFS) from LAR Center Press
Bibliographic data for series maintained by S Marjan ( this e-mail address is bad, please contact ).