Are provisions and contingent liabilities priced by the market? An exploratory study in Portugal and the United Kingdom

Detalhes bibliográficos
Autor(a) principal: Lopes, A. I.
Data de Publicação: 2019
Outros Autores: Reis, L.
Tipo de documento: Artigo
Idioma: eng
Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
Texto Completo: http://hdl.handle.net/10071/18096
Resumo: Purpose: This paper aims to examine pricing differences regarding contingencies presented in statements of financial position or notes, which are considered an area for creative accounting. Design/methodology/approach: The authors have chosen two countries with different cultural environments to test the exploratory study. The sample includes companies using the International Accounting Standard (IAS) 37, which requires recognition of provisions while contingent liabilities are only disclosed, implying different impacts from underlying judgement related with contingencies. The authors apply a regression model based on the Ohlson equity-valuation framework. Findings: The most important conclusion is that market participants in both countries follow different patterns when incorporating information about provisions and contingent liabilities. More precisely, the results suggest that provisions are value-relevant, but incrementally less negative in Portugal. Contingent liabilities seem to have no value relevance. However, an exception exists for Portuguese companies having a risk committee board, in which case a significant market valuation of contingent liabilities is found and discounted in share prices. The existence of a risk committee corroborates the value relevance of this board, which is positively valued by market participants in both national cultures. Practical implications: The findings may make a contribution to the IASB research project on the IAS 37 and possible amendments to it (suspended until the revisions to the conceptual framework are finalized) and to the IASB prioritization of communication effectiveness of financial statements to all users. Originality/value: Value relevance of contingencies differentiating countries from two different national cultures and firms with a risk committee on the board of directors.
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spelling Are provisions and contingent liabilities priced by the market? An exploratory study in Portugal and the United KingdomProvisionsContingent liabilitiesContingenciesCreative accountingNational cultureIAS 37Purpose: This paper aims to examine pricing differences regarding contingencies presented in statements of financial position or notes, which are considered an area for creative accounting. Design/methodology/approach: The authors have chosen two countries with different cultural environments to test the exploratory study. The sample includes companies using the International Accounting Standard (IAS) 37, which requires recognition of provisions while contingent liabilities are only disclosed, implying different impacts from underlying judgement related with contingencies. The authors apply a regression model based on the Ohlson equity-valuation framework. Findings: The most important conclusion is that market participants in both countries follow different patterns when incorporating information about provisions and contingent liabilities. More precisely, the results suggest that provisions are value-relevant, but incrementally less negative in Portugal. Contingent liabilities seem to have no value relevance. However, an exception exists for Portuguese companies having a risk committee board, in which case a significant market valuation of contingent liabilities is found and discounted in share prices. The existence of a risk committee corroborates the value relevance of this board, which is positively valued by market participants in both national cultures. Practical implications: The findings may make a contribution to the IASB research project on the IAS 37 and possible amendments to it (suspended until the revisions to the conceptual framework are finalized) and to the IASB prioritization of communication effectiveness of financial statements to all users. Originality/value: Value relevance of contingencies differentiating countries from two different national cultures and firms with a risk committee on the board of directors.Emerald2019-05-21T16:23:23Z2019-01-01T00:00:00Z20192019-05-21T17:19:23Zinfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/articleapplication/pdfhttp://hdl.handle.net/10071/18096eng2049-372X10.1108/MEDAR-09-2017-0212Lopes, A. I.Reis, L.info:eu-repo/semantics/openAccessreponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãoinstacron:RCAAP2023-11-09T17:57:26Zoai:repositorio.iscte-iul.pt:10071/18096Portal AgregadorONGhttps://www.rcaap.pt/oai/openaireopendoar:71602024-03-19T22:29:37.932252Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãofalse
dc.title.none.fl_str_mv Are provisions and contingent liabilities priced by the market? An exploratory study in Portugal and the United Kingdom
title Are provisions and contingent liabilities priced by the market? An exploratory study in Portugal and the United Kingdom
spellingShingle Are provisions and contingent liabilities priced by the market? An exploratory study in Portugal and the United Kingdom
Lopes, A. I.
Provisions
Contingent liabilities
Contingencies
Creative accounting
National culture
IAS 37
title_short Are provisions and contingent liabilities priced by the market? An exploratory study in Portugal and the United Kingdom
title_full Are provisions and contingent liabilities priced by the market? An exploratory study in Portugal and the United Kingdom
title_fullStr Are provisions and contingent liabilities priced by the market? An exploratory study in Portugal and the United Kingdom
title_full_unstemmed Are provisions and contingent liabilities priced by the market? An exploratory study in Portugal and the United Kingdom
title_sort Are provisions and contingent liabilities priced by the market? An exploratory study in Portugal and the United Kingdom
author Lopes, A. I.
author_facet Lopes, A. I.
Reis, L.
author_role author
author2 Reis, L.
author2_role author
dc.contributor.author.fl_str_mv Lopes, A. I.
Reis, L.
dc.subject.por.fl_str_mv Provisions
Contingent liabilities
Contingencies
Creative accounting
National culture
IAS 37
topic Provisions
Contingent liabilities
Contingencies
Creative accounting
National culture
IAS 37
description Purpose: This paper aims to examine pricing differences regarding contingencies presented in statements of financial position or notes, which are considered an area for creative accounting. Design/methodology/approach: The authors have chosen two countries with different cultural environments to test the exploratory study. The sample includes companies using the International Accounting Standard (IAS) 37, which requires recognition of provisions while contingent liabilities are only disclosed, implying different impacts from underlying judgement related with contingencies. The authors apply a regression model based on the Ohlson equity-valuation framework. Findings: The most important conclusion is that market participants in both countries follow different patterns when incorporating information about provisions and contingent liabilities. More precisely, the results suggest that provisions are value-relevant, but incrementally less negative in Portugal. Contingent liabilities seem to have no value relevance. However, an exception exists for Portuguese companies having a risk committee board, in which case a significant market valuation of contingent liabilities is found and discounted in share prices. The existence of a risk committee corroborates the value relevance of this board, which is positively valued by market participants in both national cultures. Practical implications: The findings may make a contribution to the IASB research project on the IAS 37 and possible amendments to it (suspended until the revisions to the conceptual framework are finalized) and to the IASB prioritization of communication effectiveness of financial statements to all users. Originality/value: Value relevance of contingencies differentiating countries from two different national cultures and firms with a risk committee on the board of directors.
publishDate 2019
dc.date.none.fl_str_mv 2019-05-21T16:23:23Z
2019-01-01T00:00:00Z
2019
2019-05-21T17:19:23Z
dc.type.status.fl_str_mv info:eu-repo/semantics/publishedVersion
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dc.identifier.uri.fl_str_mv http://hdl.handle.net/10071/18096
url http://hdl.handle.net/10071/18096
dc.language.iso.fl_str_mv eng
language eng
dc.relation.none.fl_str_mv 2049-372X
10.1108/MEDAR-09-2017-0212
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dc.publisher.none.fl_str_mv Emerald
publisher.none.fl_str_mv Emerald
dc.source.none.fl_str_mv reponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação
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