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Financial Instruments disclosure - Dissertation Example

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Financial Instruments disclosure

Transparency allows the users to view the implication and results of judgments, estimates and decisions undertaken by the management of an organization. Full disclosure of financial instruments refers to the exposure of all the necessary information followed while taking decisions, which would provide the investors with reasonable assurance and belief on the activities performed by the organization. Financial Statements and instruments published and issued by an organization must be comparable both with the industry standards and cross-sectional among firms over a given period of time (Pownall and Schipper, 1999, pp. 259-280). Eccher and Healy (2000), Gelb and Zarowin (2002) and Lang, Ready and Yetman (2003) investigated the relationship between accounting quality and share prices. Lang, Ready and Yetman (2003) stated from the research evidence that cross-listed firms as compared to non-cross-listed firms have higher accounting quality as the accounting data of cross-listed firms are more highly associated with price (Lang, Ready and Yetman, 2003, p.375). The relationship between share price and accounting quality is also found in different market segments around different culture, since share prices are affected by the financial disclosure of an organization. Gelb and Zarowin (2002) examined the relationship between the level of corporate disclosure of financial instruments and stock prices. This study found that organizations with more financial instruments disclosure attain higher Earnings Response Coefficient [ERC’s] (i.e. greater price information) in future as compared to organizations with less disclosure (Gelb and Zarowin, 2002, p.33). A controversial issue related to financial instruments is its valuation at fair value. Although fair value accounting is considered to be the most relevant information for predicting future cash flows, yet the reliability of the fair value measures has been questioned (Hitz, 2007, pp.323-362). Barth (1994) investigated and found how disclosed fair value estimates of investment securities of bank, and gains and losses of securities are reflected in share price on being compared with their historical cost (Hassan and Mohd-Saleh, 2010, pp. 246-247). 1.1 Disclosure of Non-Proprietary Information Proprietary information is a type of information whose disclosure affects a company’s future earnings potentially and is beneficial to the shareholders occasionally (Dye, 1985, p.123). Managers are generally reluctant to disclose non-proprietary information about financial instruments since they feel that such disclosure may affect the annual earning and the share prices of the company (Dye, 1985, p.124). As market value of a company’s shares is affected with disclosure, so the shareholders may try to implement incentive contracts which encourage managers to suppress unfavourable information and release that information which could lead to rise in the market value of the shares. In this contract, when the investors are ...Show more

Summary

FINANCIAL INSTRUMENTS DISCLOSURE Table of Contents Chapter 1: Literature Review 4 1.1 Disclosure of Non-Proprietary Information 5 1.2 Theory of Adverse Selection 9 1.3 Proprietary Cost Related to Competition 11 1.4 Impressions Management 14 1.5 Reputational Risk Management 18 1.6 Organizational Legitimacy Theory 19 1.7 Summary and Conclusion 21 Chapter 2: Methodology 23 2.1 Research Questions 27 2.2 Breakdown of Checklist Questions 27 Chapter 3: Results 30 3.1 Interest Risk Management Policies 31 3.2 Detailed Derivatives Disclosures 35 3.2.1 Tesco Plc 35 3.2.2 Sainsbury Plc 36 3.2.3 Waitrose Plc 37 3.3 Financial Instrument held for Trading 39 3.4 Use or Derivations of the word Hedge Accountin…
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