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Accounting for Macroeconomic Influences on the Firm

Oxelheim, Lars LU and Wihlborg, Clas (1991) In Journal of International Financial Management & Accounting 3(3). p.258-282
Abstract
Accounting based measures of exposure to macroeconomic shocks in exchange rates, interest rates and inflation do not capture the economic effects on the corporation of such shocks. We suggest measures that conceptually are coefficients in a multiple regression. The coefficients capture the sensitivity of a firm's real value or cash flows to unanticipated changes in each variable holding other variables constant. Information about such sensitivity coefficients would enable external stakeholders to distinguish between risk caused by firm-specific factors on the one hand and macroeconomic factors on the other. Scenario analysis is discussed as an alternative method for evaluating sensitivity coefficients. Information requirements for scenario... (More)
Accounting based measures of exposure to macroeconomic shocks in exchange rates, interest rates and inflation do not capture the economic effects on the corporation of such shocks. We suggest measures that conceptually are coefficients in a multiple regression. The coefficients capture the sensitivity of a firm's real value or cash flows to unanticipated changes in each variable holding other variables constant. Information about such sensitivity coefficients would enable external stakeholders to distinguish between risk caused by firm-specific factors on the one hand and macroeconomic factors on the other. Scenario analysis is discussed as an alternative method for evaluating sensitivity coefficients. Information requirements for scenario and regression analysis are compared. Sensitivity coefficients can be used to identify a firm's functional currency or currency basket in which cash flows are independent of exchange rate changes. An example built on an actual case in Appendix demonstrates how insights can be gained from estimates of the suggested exposure measures. (Less)
Please use this url to cite or link to this publication:
author
publishing date
type
Contribution to journal
publication status
published
subject
keywords
MACROECONOMICS, ACCOUNTING
in
Journal of International Financial Management & Accounting
volume
3
issue
3
pages
258 - 282
publisher
Wiley-Blackwell
external identifiers
  • scopus:84985287194
ISSN
0954-1314
DOI
10.1111/j.1467-646X.1991.tb00098.x
language
English
LU publication?
no
id
690ce3b8-b252-48cf-86a8-c4b81117ec41 (old id 1514027)
date added to LUP
2009-12-15 13:35:45
date last changed
2017-09-17 08:38:14
@article{690ce3b8-b252-48cf-86a8-c4b81117ec41,
  abstract     = {Accounting based measures of exposure to macroeconomic shocks in exchange rates, interest rates and inflation do not capture the economic effects on the corporation of such shocks. We suggest measures that conceptually are coefficients in a multiple regression. The coefficients capture the sensitivity of a firm's real value or cash flows to unanticipated changes in each variable holding other variables constant. Information about such sensitivity coefficients would enable external stakeholders to distinguish between risk caused by firm-specific factors on the one hand and macroeconomic factors on the other. Scenario analysis is discussed as an alternative method for evaluating sensitivity coefficients. Information requirements for scenario and regression analysis are compared. Sensitivity coefficients can be used to identify a firm's functional currency or currency basket in which cash flows are independent of exchange rate changes. An example built on an actual case in Appendix demonstrates how insights can be gained from estimates of the suggested exposure measures.},
  author       = {Oxelheim, Lars and Wihlborg, Clas},
  issn         = {0954-1314},
  keyword      = {MACROECONOMICS,ACCOUNTING},
  language     = {eng},
  number       = {3},
  pages        = {258--282},
  publisher    = {Wiley-Blackwell},
  series       = {Journal of International Financial Management & Accounting},
  title        = {Accounting for Macroeconomic Influences on the Firm},
  url          = {http://dx.doi.org/10.1111/j.1467-646X.1991.tb00098.x},
  volume       = {3},
  year         = {1991},
}