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The Usefulness Of Chilean Inflation Accounting

  • ROSS JENNINGS

    (University of Texas at Austin)

  • GUSTAVO MATURANA

    ()

    (Escuela de Administración, Pontificia Universidad Católica de Chile)

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    This study examines the usefulness to investors of the “monetary correction” (corrección monetaria) required under Chilean accounting standards. The monetary correction arises when nonmonetary assets and liabilities and owners’ equity are restated for changes in the purchasing power of the Chilean peso, and when assets and liabilities denominated in other currencies are restated for changes in the exchange rate between that currency and the Chilean peso. We provide three separate sets of empirical results that examine the relation between the monetary correction and both unexpected returns and security prices, conditional on the remainder of reported earnings. Taken together, the results suggest that the monetary correction provides useful information for investors.

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    File URL: http://eacc10.puc.cl/files/ABT/Contenidos/Vol-8-N1/Maturana.pdf
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    Article provided by Escuela de Administracion. Pontificia Universidad Católica de Chile. in its journal ABANTE.

    Volume (Year): 8 (2005)
    Issue (Month): 1 ()
    Pages: 85-118

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    Handle: RePEc:pch:abante:v:8:y:2005:i:1:p:85-118
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    1. V. Vance Roley & Douglas K. Pearce, 1988. "Firm characteristics, unanticipated inflation, and stock returns," Research Working Paper 88-01, Federal Reserve Bank of Kansas City.
    2. French, Kenneth R & Ruback, Richard S & Schwert, G William, 1983. "Effects of Nominal Contracting on Stock Returns," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 70-96, February.
    3. Flannery, Mark J & James, Christopher M, 1984. " The Effect of Interest Rate Changes on the Common Stock Returns of Financial Institutions," Journal of Finance, American Finance Association, vol. 39(4), pages 1141-53, September.
    4. Kothari, S. P. & Zimmerman, Jerold L., 1995. "Price and return models," Journal of Accounting and Economics, Elsevier, vol. 20(2), pages 155-192, September.
    5. Bernard, Victor L., 1986. "Unanticipated inflation and the value of the firm," Journal of Financial Economics, Elsevier, vol. 15(3), pages 285-321, March.
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