TY - JOUR
T1 - Deep-Market by IAS-19
T2 - A Unified Cross-Country Approach for Discount Rate Selection*
AU - Gur-Gershgoren, Gitit
AU - Kedar-Levy, Haim
AU - Hadad, Elroi
N1 - Funding Information:
This paper is based on Kedar-Levy’s report to the Israeli Accounting Standards Board, exploring the existence of a deep market for local corporate bonds. The Economic Research Department of the Israel Securities Authority (ISA) validated the findings. The authors are grateful to the staff of the ISA Economic Research Department for their diligent assistance, especially to Liza Tepper, Rita Yaakov, Guy Savoz, and Niki Kochenko, and to a large group of professionals who commented on the preliminary report in two public hearings, and to seminar participants at the Inter-Disciplinary Center (IDC) Herzelia. The opinions expressed in this work do not necessarily reflect the opinion of the ISA. This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors.
Publisher Copyright:
© Multinational Finance Society, a nonprofit corporation. All rights reserved.
PY - 2020/9/1
Y1 - 2020/9/1
N2 - The discount rate reporting entities apply for future employee benefits obligations has a profound impact on their present value, both at the firm and at the country level. The IAS-19 accounting standard requires the existence of a ‘deep market’ in high-quality corporate bonds in order to use their yields as the discount rate, and in its absence, the often-lower government bond yields should be used. From a financial economics perspective, the term ‘deep market’ is vaguely defined in IAS-19, therefore we propose a dual approach. First, from the macro-economic perspective, we explore funding liquidity, and second, from the micro-economic perspective, we measure the illiquidity premium in high-quality corporate bonds. We argue that both aspects are essential because they are inter-connected. Our approach is tested empirically on a sample of 32 countries, with detailed analysis of the Israeli market as a case in point.
AB - The discount rate reporting entities apply for future employee benefits obligations has a profound impact on their present value, both at the firm and at the country level. The IAS-19 accounting standard requires the existence of a ‘deep market’ in high-quality corporate bonds in order to use their yields as the discount rate, and in its absence, the often-lower government bond yields should be used. From a financial economics perspective, the term ‘deep market’ is vaguely defined in IAS-19, therefore we propose a dual approach. First, from the macro-economic perspective, we explore funding liquidity, and second, from the micro-economic perspective, we measure the illiquidity premium in high-quality corporate bonds. We argue that both aspects are essential because they are inter-connected. Our approach is tested empirically on a sample of 32 countries, with detailed analysis of the Israeli market as a case in point.
KW - deep market
KW - employee benefits
KW - funding liquidity
KW - IAS-19
KW - market liquidity
UR - http://www.scopus.com/inward/record.url?scp=85142891446&partnerID=8YFLogxK
M3 - Article
SN - 1096-1879
VL - 24
SP - 119
EP - 154
JO - Multinational Finance Journal
JF - Multinational Finance Journal
IS - 3-4
ER -