THE BEFORE-/AFTER-INTEREST CHOICE IN THE MEASURE OF SEGMENT EARNINGS
- People & Global Business Association
- Global Business and Finance Review
- Vol.9 No.1
-
2004.0651 - 62 (12 pages)
- 2
Before harmonization of Accounting Standards, Australian companies were observed to report segment earnings either before or after interest. Firms reporting segment earnings after interest are hypothesized to have had higher debt levels, multiple lenders and less related segments than firms reporting segment earnings on an EBIT basis. Supporting evidence is documented. It is concluded that a uniform measure of segment earnings as prescribed by IAS 14 and corresponding country-specific Standards inhibits firms with high debt levels from signaling their prospects in order to lower borrowing costs.
Abstract
INTRODUCTION
REGULARTORY BACKGROUND
BORROWING COST ARGUMENTS
AN EARNINGS MEASUREMENT CHOICE MODEL - VARIABLE DEFINITIONS
SAMPLE AND DATA
EVIDENCE
CONCLUSION
REFERENCES
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