The value relevance of the foreign translation adjustment in China

Abstract

The study presents an economic analysis of the foreign currency translation adjustment and empirically explore the relationship between foreign currency translation adjustment and changes in firm value for a sample of Chinese firms. The study result shows that the translation adjustment is associated with a loss of value instead of increase in value. This result indicates that for firms in China, the accounting rules which governing foreign currency translation adjustment lead to results opposite to the economic effects of exchange rate changes in general.