The Fair Value of Cash Flow Hedges, Future Profitability and Stock Returns

Persistent Link:
http://hdl.handle.net/10150/195374
Title:
The Fair Value of Cash Flow Hedges, Future Profitability and Stock Returns
Author:
Campbell, John L.
Issue Date:
2010
Publisher:
The University of Arizona.
Rights:
Copyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author.
Abstract:
I examine the information content of unrealized cash flow hedge gains/losses for future profitability and stock returns. An unrealized gain on a cash flow hedge suggests that the price of the underlying hedged item (i.e. commodity price, foreign currency exchange rate or interest rate) moved in a direction that negatively affects the firm. Based on this inverse relation, I find that unrealized cash flow hedge gains/losses are negatively associated with future gross margin. This association is weaker for firms that have the ability to pass input price changes through to customers. Finally, I find that investors do not immediately price the information conveyed by cash flow hedges. Instead, investors appear surprised by future realizations of gross margin, consistent with the view that a lack of transparent disclosure on future hedged transactions leads to a delay in pricing. These results may inform current policy decisions of both the FASB and SEC.
Type:
text; Electronic Dissertation
Keywords:
cash flow hedge; derivatives; fair value; other comprehensive income
Degree Name:
Ph.D.
Degree Level:
doctoral
Degree Program:
Accounting; Graduate College
Degree Grantor:
University of Arizona
Advisor:
Dhaliwal, Dan S.
Committee Chair:
Dhaliwal, Dan S.

Full metadata record

DC FieldValue Language
dc.language.isoENen_US
dc.titleThe Fair Value of Cash Flow Hedges, Future Profitability and Stock Returnsen_US
dc.creatorCampbell, John L.en_US
dc.contributor.authorCampbell, John L.en_US
dc.date.issued2010en_US
dc.publisherThe University of Arizona.en_US
dc.rightsCopyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author.en_US
dc.description.abstractI examine the information content of unrealized cash flow hedge gains/losses for future profitability and stock returns. An unrealized gain on a cash flow hedge suggests that the price of the underlying hedged item (i.e. commodity price, foreign currency exchange rate or interest rate) moved in a direction that negatively affects the firm. Based on this inverse relation, I find that unrealized cash flow hedge gains/losses are negatively associated with future gross margin. This association is weaker for firms that have the ability to pass input price changes through to customers. Finally, I find that investors do not immediately price the information conveyed by cash flow hedges. Instead, investors appear surprised by future realizations of gross margin, consistent with the view that a lack of transparent disclosure on future hedged transactions leads to a delay in pricing. These results may inform current policy decisions of both the FASB and SEC.en_US
dc.typetexten_US
dc.typeElectronic Dissertationen_US
dc.subjectcash flow hedgeen_US
dc.subjectderivativesen_US
dc.subjectfair valueen_US
dc.subjectother comprehensive incomeen_US
thesis.degree.namePh.D.en_US
thesis.degree.leveldoctoralen_US
thesis.degree.disciplineAccountingen_US
thesis.degree.disciplineGraduate Collegeen_US
thesis.degree.grantorUniversity of Arizonaen_US
dc.contributor.advisorDhaliwal, Dan S.en_US
dc.contributor.chairDhaliwal, Dan S.en_US
dc.contributor.committeememberBens, Dan A.en_US
dc.contributor.committeememberTrombley, Mark A.en_US
dc.contributor.committeememberKlasa, Sandyen_US
dc.contributor.committeememberSchwartz, Jr., William C.en_US
dc.identifier.proquest10874en_US
dc.identifier.oclc659753792en_US
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