The Effects of Financial Derivatives on Earnings Management and Market Mispricing

  • Oktavia Oktavia Universitas Kristen Krida Wacana
  • Sylvia Veronica Siregar Universitas Indonesia
  • Ratna Wardhani Universitas Indonesia
  • Ning Rahayu Universitas Indonesia
Keywords: Financial derivatives, earnings management, earnings persistence, market mispricing

Abstract

This study aims to examine the effects of financial derivatives on earnings management and market mispricing. A cross-country analysis was applied within the scope of four ASEAN (Association of Southeast Asian Nations) countries that comply with IAS 39, consisting of the Philippines, Indonesia, Malaysia, and Singapore. A sample of 1,395 firm-years of companies using financial derivatives were engaged for study and the evidence shows that the use of financial derivatives for hedging purposes decreases the magnitude of the earnings management. In addition, this study also supports the idea that earnings expectations embedded in the stock returns of companies using financial derivatives, that meet the hedge accounting criteria, reflect the difference in the persistence of cash flow components more accurately than those using financial derivatives for speculative purposes.

References

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Published
2019-12-27
How to Cite
Oktavia, O., Siregar, S. V., Wardhani, R., & Rahayu, N. (2019). The Effects of Financial Derivatives on Earnings Management and Market Mispricing. Gadjah Mada International Journal of Business, 21(3), 289-307. Retrieved from https://dev.journal.ugm.ac.id/v3/gamaijb/article/view/15700