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Accounting for Macroeconomic Influences on the Firm

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Author

  • Lars Oxelheim
  • Clas Wihlborg

Summary, in English

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.

Publishing year

1991

Language

English

Pages

258-282

Publication/Series

Journal of International Financial Management & Accounting

Volume

3

Issue

3

Document type

Journal article

Publisher

Wiley-Blackwell

Topic

  • Economics and Business
  • Business Administration

Keywords

  • MACROECONOMICS
  • ACCOUNTING

Status

Published

ISBN/ISSN/Other

  • ISSN: 0954-1314