Corporate Risk Management and Hedge Accounting* Corporate Risk Management and Hedge Accounting.

Motivated by the debate about the economic consequences of mandatory adoption of International Financial Reporting Standards (IFRS), this study investigates the effect of hedge accounting under IFRS on corporate risk management. Using a sample of large UK nonfinancial firms from 2003 to 2008, we show that the implementation of the new standards reduces the level of asymmetric information faced by derivative users. For firms that hedge under IFRS we find that analysts’ forecast error and dispersion are significantly lower. Hedge accounting influences the predictability of earnings similarly in the year of the IFRS adoption and in the following years. Moreover, we provide weak evidence that forecast accuracy is lower for firms that hold derivative positions that do not fully qualify for hedge accounting treatment under IFRS. Our results are robust to controlling for self-selection. Finally, our results continue to apply when we use bid-ask spread as an alternative proxy for information asymmetry. The paper contributes to prior research on the effects of hedge accounting and on the adoption of IFRS. [ABSTRACT FROM AUTHOR]