Financial Reporting in Hyperinflationary Economies and the Value Relevance of Accounting Amounts: Hard Evidence from Zimbabwe

Posted: 21 Jun 2018

See all articles by Eddie Chamisa

Eddie Chamisa

University of Cape Town - Department of Finance and Tax

Musa Mangena

University of Nottingham Business School

Hamutyinei Harvey Pamburai

University of Cape Town

Venancio Tauringana

Bournemouth University - Accounting and Finance

Date Written: June 6, 2018

Abstract

We examine the value relevance of inflation-adjusted (IA) and historical cost (HC) amounts in a hyperinflationary economy. Using a unique dataset drawn from annual reports of firms listed on the Zimbabwe Stock Exchange from 2000–2005, we find that both sets of amounts are value relevant but HC amounts are superior to IA amounts. We also show that inflation gains and losses provide incremental information content beyond that provided by the HC amounts and that the power of this incremental content model is equivalent to that of the HC model but superior to that of the IA model. Further analyses indicate that, in periods of relatively low inflation, HC amounts are more value relevant, while in periods of relatively high inflation, the two sets of amounts are equally value relevant. Finally, we show that HC amounts have a greater ability to predict future cash flows than IA amounts, which suggests that the superiority of their value relevance stems from this.

Keywords: IAS 29, historical cost amounts, inflation-adjusted amounts, value relevance, hyperinflationary economies

JEL Classification: G15, M40, M41

Suggested Citation

Chamisa, Edward Elae and Mangena, Musa and Pamburai, Hamutyinei Harvey and Tauringana, Venancio, Financial Reporting in Hyperinflationary Economies and the Value Relevance of Accounting Amounts: Hard Evidence from Zimbabwe (June 6, 2018). Review of Accounting Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3192065

Edward Elae Chamisa (Contact Author)

University of Cape Town - Department of Finance and Tax ( email )

Private Bag X3
Rondebosch, 7701
South Africa

Musa Mangena

University of Nottingham Business School ( email )

United Kingdom

Hamutyinei Harvey Pamburai

University of Cape Town ( email )

Private Bag X3
Rondebosch, 7701
South Africa

Venancio Tauringana

Bournemouth University - Accounting and Finance ( email )

Centre for Corporate Governance and Regulation
Fern Barrow
Poole BH12 5BB, Dorset
United Kingdom

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