The Relationship between Taiwan’s Statement of Financial Accounting Standards No.34 and Securities Return
Date Issued
2006
Date
2006
Author(s)
Li, Yu-Ju
DOI
zh-TW
Abstract
To reflect the true value of financial instruments in the financial reports, Taiwan’s Statement of Financial Accounting Standards No.34, Accounting for Financial Instruments, was effective in 2006. When it was first applied, there would be “cumulative effect of changes in accounting principles” and a corresponding adjustment to equity in the 2006 first quarter financial reports due to the reclassification and re-valuation of financial instruments. Taiwan Stock Exchange Center and the OTC required all public firms announce the amounts.
The effect of the Taiwan’s SFAS No.34 was basically due to the changes in valuation of investments from LCM to fair value and the inclusion of financial derivatives in the financial reports at fair value. This study investigated whether the amounts announced by electronics firms has information contents; that is, whether the new valuations of financial instruments could provide incremental information to alter investors’ prediction of firm’s future cash flows.
This event study took 296 observations and the window is 7 days centered on the announcement dates. The abnormal returns were estimated by the market model. Firstly, observations were classified as “good news firms” and “bad news firms” by the amounts announced in order to examine the abnormal return patterns of the two groups. Secondly, regression models were used to analyze the relation of abnormal returns and the amounts announced.
The empirical results revealed that the good news firms indeed have shown positive abnormal returns during the event periods, and the abnormal returns of bad news firms was not significantly negative. However, the results of regression have showed that there was significantly positive correlation between cumulative abnormal returns and the amounts announced. Particularly, the effect on equity has significant explanatory power to cumulative abnormal returns. As a result, generally speaking, the results indicated that the effect amounts announced when the Taiwan’s SFAS No.34 put into practice had information contents, and they could alter investors’ beliefs of future cash flows and consequently caused the changes of stock prices.
Subjects
三十四號公報
事件研究
電子業
Taiwan’s Statement of Financial Accounting Standards No.34
Event Study
Information Content
Electronics Industry
Type
other
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