The Value Relevance of Accounting under Political Uncertainty: Evidence Related to Quebec's Independence Movement

Abstract

The Canadian province of Quebec is a region of an advanced industrialized nation characterized by a strong independence movement and, therefore, provides an interesting context in which to test the effect of political uncertainty on the relationship between market values and accounting values. In this study we compare market-to-book value associations of a sample of firms headquartered in Quebec with those of a sample of Canadian firms headquartered outside Quebec, over the period 1988-2002. Our comparisons suggest that, on average, the value of Quebec-based firms is significantly less than other Canadian firms when valuation is based on multiples of book value and earnings. In addition, we find that the ''Quebec discount'' decreased significantly in the period immediately following the 1995 provincial sovereignty referendum wherein Quebeckers voted (narrowly) against Quebec sovereignty. We conclude that the relative undervaluation of Quebec firms is related, at least in part, to political uncertainty associated with the Quebec independence movement.

Excess control and the risk of corporate expropriation: Canadian evidence

“…The estimated coeffi cient shows a consistent negative and signifi cant coeffi cient of the Quebec effect on corporate value, suggesting that fi rms headquartered in Quebec are likely to incur a value discount. This evidence is supportive of the nonparametric result and is in line with the fi nding of Graham, Morrill, and Morrill (2005). There was no interaction effect between the Quebec variable and excess control.…”

Political/Policy Uncertainty, Corporate Disclosure, and Information Asymmetry*

“…Another stream of research exploits political movements such as Quebec independence as a proxy for political/policy uncertainty. Specifically, Graham et al (2005) and Graham et al (2012) document a "Quebec discount" in firm valuation for Quebec-based firms due to the Quebec independence movement. Tirtiroglu et al (2004) show that firms receive positive market reactions for relocating away from Quebec.…”

“…However, most of literature focuses on political/policy uncertainty in the United States. A notable exception is the body of research on the impact of the Quebec independence movement (Tirtiroglu et al 2004;Graham et al 2005Graham et al , 2012. These studies document the generally negative impact of the political/policy uncertainty related to Quebec's independence movement on firm value and market reactions.…”

“…They find that political/policy uncertainty not only affects business cycles, capital inflows, and economic recoveries at the macro level (Bloom 2009; Julio and Yook 2012; Baker et al 2016), but also impacts investment (Gulen and Ion 2016; Jens 2017), merger and acquisition activities (N. H. Nguyen and Phan 2017; Bonaime et al 2018), cash holding (Julio and Yook 2012), capital expenditure (Jens 2017; Z. Chen et al 2018), research and development (Atanassov et al 2019), external financing (Çolak et al 2017; Jens 2017; Bonaime et al 2018), and dividend payout (Huang et al 2015) at the firm level. Studies of the effects of political/policy uncertainty on capital markets show that it decreases firm valuation (Tirtiroglu et al 2004; Graham et al 2005, 2012) and increases stock price volatility, stock price crash risk, and mispricing (Boutchkova et al 2012; Baker et al 2016; J. Chen et al 2017; Liu et al 2017; X. Jin et al 2019; Chan et al 2020; Fan et al 2020). Political/policy uncertainty also affects the debt market by increasing credit risk and the cost of debt (Francis et al 2014; Waisman et al 2015; Bradley et al 2016; Ashraf and Shen 2019; Datta et al 2019; Gao et al 2019; Kaviani et al 2020).…”

Pertinence des différentes modalités de présentation et comptabilisation des régimes d'options d'achat d'actions

“…Certaines entreprises dont l'exercice financier 2004 débutait avant cette date avaient encore la possibilité de présenter leur charge par l'intermédiaire d'un bénéfice pro forma. En raison de la taille de notre échantillon, des difficultés reliées au traitement statistique des chevauchements et de l'impossibilité d'intégrer simultanément dans le modèle de régression la charge présentée par l'intermédiaire d'un bénéfice pro forma et la charge constatée dans le compte de résultat (multicolinéarité présente entre les deux variables), nous avons effectué nos analyses par sous-périodes basées sur les années civiles et établies à partir des dates de clôture des exercices financiers, ce choix méthodologique permettant (Graham et al 2005 ;Leroux et al 2007). 6.…”