The effect of fair value adjustments on dividend policy under mandatory IFRS adoption

Australian evidence

Xiaomeng Chen*, Andreas Hellmann, Safdar R. Mithani

*Corresponding author for this work

Research output: Contribution to journalArticle


Using a sample of firms from the financial sector of the Australian Securities Exchange, we examine the effect of the fair value adjustments of financial instruments on firms’ dividend distributions in the context of mandatory International Financial Reporting Standards (IFRS) adoption. We find a positive relationship between the fair value adjustments of financial instruments and firms’ dividend payouts, suggesting that the frequent use of fair value adjustments of financial instruments by financial firms following mandatory IFRS adoption has the potential to increase the proportion of transitory earnings in reported earnings and cause changes in dividend policies. Our results add to the ongoing debate on the unintended economic consequences of fair value accounting (FVA) and provide empirical support for regulators’ concerns that unrealized FVA gains from asset revaluation during booms may encourage the distribution of those unrealized gains.
Original languageEnglish
Number of pages18
JournalAbacus-A Journal Of Accounting Finance And Business Stud
Early online date17 Dec 2019
Publication statusE-pub ahead of print - 17 Dec 2019



  • Dividend policy
  • Fair value accounting
  • IFRS
  • Permanent earnings
  • Transitory earnings

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