The effects of financial derivatives on earnings management and market mispricing

Oktavia Sylvia Veronica Siregar, Ratna Wardhani, Ning Rahayu

Research output: Contribution to journalArticle

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.

Original languageEnglish
Pages (from-to)289-307
Number of pages19
JournalGadjah Mada International Journal of Business
Volume21
Issue number3
DOIs
Publication statusPublished - 1 Sep 2019

Keywords

  • Earnings management
  • Financial derivatives
  • Market mispricin

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