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Management of Accounting Exposure to Currency Changes Role and Evidence of Agency Costs

Management of Accounting Exposure to Currency Changes Role and Evidence of Agency Costs This paper contends that, contrary to conventional wisdom, it may be rational to manage translation exposure. Accounting procedures for the translation of foreign currency accounts influence the reported income of a multinational firm. With nonzero agency costs, reported income impacts real costs. In such cases, therefore, it may be rational to hedge translation exposure. Empirical evidence of agency costs and the managerial tendency to report higher levels of translated income, based on the early adoption of Financial Accounting Standard No. 52, is presented. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Managerial Finance Emerald Publishing

Management of Accounting Exposure to Currency Changes Role and Evidence of Agency Costs

Aggarwal, Raj
Managerial Finance , Volume 17 (4): 13 – Apr 1, 1991
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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
0307-4358
DOI
10.1108/eb013676
Publisher site
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Abstract

This paper contends that, contrary to conventional wisdom, it may be rational to manage translation exposure. Accounting procedures for the translation of foreign currency accounts influence the reported income of a multinational firm. With nonzero agency costs, reported income impacts real costs. In such cases, therefore, it may be rational to hedge translation exposure. Empirical evidence of agency costs and the managerial tendency to report higher levels of translated income, based on the early adoption of Financial Accounting Standard No. 52, is presented.

Journal

Managerial Finance – Emerald Publishing

Published: Apr 1, 1991

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