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Overstated Fair Values for Private Equity: Need for Adjustment of IFRS13
Finn Schøler
DOI: 10.15604/ejef.2024.12.03-04.001
Abstract
Our purpose is to present IFRS13 adjustment that ensures more faithful fair values for private equity holdings in the balance sheet, which has significant implications for financial markets, investors, and regulators. The existing regulation regarding fair value measurement of private equity is neither prudent nor neutral as could be expected following the IASB conceptual framework. From the valuation literature we have practical suggestions for handling discounts for lack of marketability and illiquidity providing a stable platform for estimating realistic bid-prices and thus fair values (exit prices) for private equity holdings. Hence, we introduce an approach that ensures non-overstated but fair values in balance sheet. Our suggestions can easily be incorporated in the existing IFRS13 to the benefit of accounting users seeking faithful information regarding companies’ private equity holdings, and thus, it represents an improvement suggestion for the IASB regulation on fair value measurement.
Keywords: Private Equity, Valuation, DLOM, Fair Value, IFRS13
Tail Risk Contagion and Multiscale Spillovers in International Financial Markets
Samuel Tabot Enow
DOI: 10.15604/ejef.2024.12.03-04.002
Abstract
The interconnectedness of global financial markets has heightened tail risk contagion, where excessive losses in one financial market spread to other markets leading to systemic instability. This study investigates the mechanisms of tail risk contagion and multiscale spillovers in international financial markets by employing a Conditional Value-at-Risk and wavelet-based spillover analysis. Using daily market prices from the S&P 500, FTSE 100, DAX, Nikkei 225, and SSE Composite indices from 2010 to 2022, the findings revealed significant tail risk contagion during episodes of distress with the COVID-19 pandemic amplifying cross-market linkages. The results of the multiscale spillover analysis further revealed that short-term spillovers are driven by market sentiment, while long-term spillovers reflect fundamental economic linkages. Volatility spillovers are also found to be significant in financial markets, with the S&P 500 acting as a primary transmitter of shocks. These findings underscore the importance of adopting a multiscale approach to monitoring financial stability and highlight the need for enhanced regulatory frameworks to mitigate systemic risks. The results highlight the dual role of financial markets as shock absorbers and amplifiers, contingent on time horizons. This study advocates multiscale systemic risk monitoring frameworks, combining real-time sentiment tracking with macroprudential policies targeting long-term structural vulnerabilities.
Keywords: Tail Risk, Financial Contagion, Spillover Effect, Conditional Value-At-Risk; Wavelet Analysis
Technical Efficiency Change, Technological Progress and Productivity Change in Indian Manufacturing Industries During the Post Reform Period
Muneer Babu M.
DOI: 10.15604/ejef.2024.12.03-04.003
Abstract
In this paper, we examine the total factor productivity (TFP) changes in 26 industries in the manufacturing sector in India during 1992-93 to 2019-20, by using the Malmquist index. The initial decade of reforms experienced scant technological progress (0.6 percent), which later accelerated to 4.3 percent in the second and 2.2 percent in the third decade. Economic crises also tremendously influenced productivity, where TFP fell by 9.3 percent during the East Asian financial crisis and 7.7 percent when there was the global financial crisis. Our study shows that the TFP has on average increased by 1.08 percent during the study period primarily due to technological progress, as sample manufacturing industries experienced technological progress of 2.69 percent during the study period. However, there was a marginal deceleration in operational and managerial practices by 0.3 percent and there was on average 0.4 percent reduction in economies of scale in sample manufacturing industries. This shows that despite a decline in overall technical efficiency by 0.7 percent on average during the study period. This shows that Indian manufacturing industries provided a greater focus on innovation and technological advancement, which led to overall growth in TFP, despite inefficiencies in managerial and operational practices, highlighting the need for targeted intervention to enhance operations, capacity utilization and managerial efficiency of Indian manufacturing industries.
Keywords: Scale Efficiency, Technical Efficiency, Technological Progress, Total Factor Productivity
Global Oil Price Volatility and Food Prices in South Africa
Brian Tavonga Mazorodze
DOI: 10.15604/ejef.2024.12.03-04.004
Abstract
Global oil prices have been volatile in the past two decades, raising concerns about their pass-through effect in oil-importing countries. Reacting to this background, this paper examines the pass-through effect of global oil price shocks on food prices in South Africa using an E-GARCH model, a Structural VAR and monthly data observed between 2002 and 2024. The results show a significant pass-through effect from global oil prices to domestic petrol prices and from domestic petrol prices to transportation costs. Interestingly, although a significant and sizeable pass-through effect is observed from petrol prices to transport costs, the analysis does not find a significant and immediate pass-through effect from transport costs to food prices likely reflecting regulatory factors coupled with market rigidities and delayed adjustments inherent in South African markets. Evidence further shows that while the immediate pass-through effect of global oil price shocks is incomplete and marginal in the short run, the cumulative impact grows over time. In view of these results, policy measures such as fuel price stabilization, investment in alternative energy and subsidies targeting vulnerable households could help mitigate the impact of oil price volatility on South Africa’s food market and protect low-income households from food insecurity.
Keywords: Global Oil Prices, Food Prices, Pass-Through Effect, Food Markets
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