Market valuation of the translation process under SFAS No. 52: Further evidence

This research investigates the information content of the translation information resulting from exchange rate fluctuations. Two hypotheses are examined. The dollar movement hypotheses investigate whether there is a positive relationship between security valuation and the translation information and whether the market assigns different weights to translation gains and losses in both the depreciating and appreciating exchange rate environments. The geographic concentration hypothesis tests whether the market's response to the translation information is geographically sensitive. Prior research on SFAS No. 8 and SFAS No. 52 has concentrated on the price and trading volume responses to the deliberations and issuance of these two accounting statements. Soo and Soo (1994) examine the long-term effect of the disclosure requirement under SFAS No. 52 on MNEs' security prices from 1981 to 1987. However, they fail to address two important issues pertinent to the MNE research--the effects of exchange rate changes and the geographic concentration. The dollar movement hypotheses provide strong evidence that under both the appreciating and depreciating exchange rate environments, a positive relationship exists between security returns and the translation information when MNEs disclose translation losses in stockholders' equity. The findings also provide evidence for a positive or at least non-negative relationship between security returns and the translation information when MNEs disclose translation gains. The findings provide evidence that the positive relationship is greater in appreciating than in depreciating exchange rate environment for losses, but no evidence of such a difference exists for gains. The evidence also indicates that the market reacts more to the translation information when translation losses are reported than when translation gains are reported in both exchange rate environments. The examination of the impact of the geographic concentration of MNEs' foreign operations provides limited evidence to support the geographic concentration hypothesis. One possible explanation for the weak findings is that the larger degree of the aggregation of some of the geographic disclosures prevents the market from impounding the geographic information.

Grantor dc:publisher

University of North Texas

Year dc:date

2000

Author dc:creator

• Lin, Henghsiu

Contributors dc:contributor

• Conover, Teresa L.
• Tripathy, Niranjan
• Boynton, Charles
• Tieslau, Margie A.

• Foreign exchange -- Accounting.
• International business enterprises -- United States -- Accounting.
• Stock exchanges.
• MNEs
• exchange rate
• security valuation
• translation
• fluctuations

Statement dc:rights

• Public
• Copyright
• Lin, Henghsiu
• Copyright is held by the author, unless otherwise noted. All rights reserved.

Language dc:language

English

Identifier

oclc: 47195908
untcat: b2300840
https://digital.library.unt.edu/ark:/67531/metadc2519/
ark: ark:/67531/metadc2519

OAI identifier oai:identifier

info:ark/67531/metadc2519