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Unintended consequences of changing accounting standards

  • A growing body of literature investigates the interaction of changes in accounting standards with institutions such as investor protection laws and corporate governance mechanisms. We examine the unintended consequences of fair value accounting in determining mandated preferred dividends. We study the case of Russian energy conglomerate UES, which had a good corporate governance track record and a consistent dividend history. Following its adoption of fair value accounting, UES reported the highest quarterly profit in world corporate history, but it subsequently omitted dividends for all its shareholders. The case analysis suggests that the transitory nature of fair value adjustments and the interaction with the investment policy were important considerations in justifying the dividend omission. The reduction in preferred dividends was not offset by any capital gains, and led to a wealth transfer from preferred to ordinary shareholders. Thus, requiring the use of fair value accounting when determining the dividend distribution base can lead to unintended consequences, and increase agency costs for minority shareholders.

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Metadaten
Author:Igor Goncharov, Sander van Triest
URN:urn:nbn:de:hbz:992-opus4-6801
DOI:https://doi.org/10.2139/ssrn.1634790
Subtitle (English):the case of fair value accounting and mandatory dividends
Series (Serial Number):FAccT Center Working Paper Series (02/2012)
Publisher:WHU - Otto Beisheim School of Management
Place of publication:Vallendar
Document Type:Working Paper
Language:English
Date of Publication (online):2010/07/06
Date of first Publication:2010/07/06
Release Date:2018/06/19
Tag:Dividendenpolitik; Fair-Value-Bewertung; IFRS; Obligatorische Dividenden
Dividend policy; Fair value accounting; IFRS; Mandatory dividends
Edition:March 2014
Page Number:38
Institutes:WHU Centers / WHU Financial Accounting & Tax Center (FAccT Center)
JEL-Classification:G Financial Economics / G3 Corporate Finance and Governance / G35 Payout Policy
G Financial Economics / G3 Corporate Finance and Governance / G38 Government Policy and Regulation
M Business Administration and Business Economics; Marketing; Accounting / M4 Accounting and Auditing / M41 Accounting
P Economic Systems / P2 Socialist Systems and Transitional Economies / P21 Planning, Coordination, and Reform
Licence (German):Copyright for this publication