The Value Relevance And Relative Impact Of Gains And Losses On Valuations Of Derivatives

Abstract

This study empirically analyzes non-financial securities listed companies from 2011 to 2014 to investigate the firm value relevance of derivative gains and losses and the relative impact of fair value and cash flow hedging derivative gains and losses, Based on the Ohlson (1995, 2001) model, I find that the firm value relevance of the offsetting amounts of fair value hedge gains and losses in the income statement and cash flow hedge gains and losses in the statement of financial position is significant. I also find that fair value hedge gains have a positive impact on firm value and fair value hedge losses have a negative impact on firm value. However, cash flow hedge gains and losses are not significant, contrary to previous studies. Finally, to measure the relative impact, I simultaneously estimate the fair value hedge gains and losses in the income statement and the cash flow hedge gains and losses in the statement of financial position. I find that the cash flow hedge gains and losses are more relevant to firm value than expected. I believe that more rigorous analysis is needed to clarify this issue.