The Statement of Financial Accounting Standards No.133 (SFAS 133) allows firms to apply hedge accounting only to qualified hedges that pass effectiveness tests. Unqualified hedges (speculations) are required to be marked to market, and the unrealized gains/losses are to be recognized in earnings...

Two complementary sources of information are studied in a multiperiod agency model. One is an accounting source which partially but credibly conveys the agent’s private information through accounting recognition. The other is an unverified communication by the agent (i.e., a self-report). In a...