Discussion of “Comparing Alternative Hedge Accounting Standards: Shareholders' Perspective”

Discussion of “Comparing Alternative Hedge Accounting Standards: Shareholders' Perspective” 294 CHANDRA KANODIA lending policies, and whether this, in turn, would affect interest rates and real investment in the economy. Similarly, consider the recent debate on the capitalization of intangible investments. A value-relevance study, of which there have been several, would estimate intangible investments, capitalize and amortize them, and examine their value relevance by testing whether the restated earnings and book values provide a better fit with empirically observed returns in the capital market. (Since the data on security returns are drawn from a world where intangibles are not capitalized, the interpretation of such a study is problematic.) On the other hand, a real effects study would ask whether a reporting mandate to capitalize intangibles would alter firms’ incentives to invest in intangibles. This real effect could possibly arise through the pricing of intangible investments in the capital market. The question can equivalently be framed in terms of cost of capital. Is the cost of capital for intangible investments altered as a consequence of how intangibles are treated in the financial statements? Notice that the real effects perspective argues that disclosure policy alters the very dis- tribution of the cash flows about which that disclosure is seeking to provide http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Discussion of “Comparing Alternative Hedge Accounting Standards: Shareholders' Perspective”

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Publisher
Springer Journals
Copyright
Copyright © 1999 by Kluwer Academic Publishers
Subject
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1023/A:1009690319242
Publisher site
See Article on Publisher Site

Abstract

294 CHANDRA KANODIA lending policies, and whether this, in turn, would affect interest rates and real investment in the economy. Similarly, consider the recent debate on the capitalization of intangible investments. A value-relevance study, of which there have been several, would estimate intangible investments, capitalize and amortize them, and examine their value relevance by testing whether the restated earnings and book values provide a better fit with empirically observed returns in the capital market. (Since the data on security returns are drawn from a world where intangibles are not capitalized, the interpretation of such a study is problematic.) On the other hand, a real effects study would ask whether a reporting mandate to capitalize intangibles would alter firms’ incentives to invest in intangibles. This real effect could possibly arise through the pricing of intangible investments in the capital market. The question can equivalently be framed in terms of cost of capital. Is the cost of capital for intangible investments altered as a consequence of how intangibles are treated in the financial statements? Notice that the real effects perspective argues that disclosure policy alters the very dis- tribution of the cash flows about which that disclosure is seeking to provide

Journal

Review of Accounting StudiesSpringer Journals

Published: Sep 30, 2004

References

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