The Role of Financial Derivatives, Instruments on Companies’ Risk-Adjusted Discount Rate and company value

Subject Areas : Financial engineering

mojtaba chavoshani ¹ , babak jamshidinavid ² , mehrdad ghanbari ³ , Afshin Baghfalaki ⁴

1 - Department of Accounting, Islamic Azad University Kermanshah Branch, Kermanshah, Iran
2 - Department of accounting , Kermanshah Branch, Islamic Azad University ,Kermanshah
3 - Department of accounting , Kermanshah Branch, Islamic Azad University ,Kermanshah, Iran
4 - Department of Economic, Kermanshah Branch, Islamic Azad University, Kermanshah, Iran

Received: 2019-03-10 Accepted : 2019-04-16 Published : 2019-06-22

Keywords: discount Rate, Financial derivatives, Disclosure level, financial instrument, excess return,

Abstract :

This research aims in effect identification of Iran accounting standard No.15 in revelation of instruments, financial derivatives and its effect on excess return and companies` values in Tehran Stock Exchange. So, the research sample includes 82 investigated companies in Tehran Stock Exchange for a 4 year duration, (2014-2017). In this research combination and adjustment of Yekini suggested checklists and other internal standard 15, 36, 37 of Iran have been used to evaluate revelation level of financial derivatives in comparison by the above standard requirements. Regression test has been used for generalized squares` minimum of paneling data and the below conclusions have been gained. The research findings indicate that companies intend more revelation based on the standard requirements on Iran No.15. The findings of the research first hypothesis shows that the companies which have disclosed their financial instruments based on this standard, their risk adjusted discount rate will decrease, so this means increase of future market and market price in the other words it means increase of current market value. The findings of the second hypothesis also show that in companies that manage earnings, the risk of discount rates is also increased by reducing the level of disclosure of financial instruments and derivatives. The research third hypothesis represents that there is a direct meaningful relationship between revelation level of instruments and financial derivatives with company value. These conclusions cover the findings out of country, too. So, existence of high modulations of excess return for companies with lower revelation level indicate higher risk. Finally, company beneficiaries should expect risk in regards to level and quality of revelation instruments and financial derivatives.