Does the Use of Hybrids Cause Distortions in Financial Statement Disclosures?

Does the Use of Hybrids Cause Distortions in Financial Statement Disclosures?

Nigel Finch

Lecturer in Management, Macquarie Graduate School of Management

Abstract

This paper reports on a study of a sample of hybrid securities issued by large Australian listed corporations between 2002 and 2004. The paper focuses on the key financial reporting impacts of this sample. From a balance sheet perspective these include the frequency with which the securities were classified as equity and the resulting impact on leverage ratios and other traditional risk measures. The impact of these securities on reported earnings and key financial performance metrics is also discussed. Policy implications are drawn from the findings by way of conclusion.