Embedded value

Abstract: This paper reviews the developments in reporting of traditional embedded value and summarises some of the reasons why this is now undergoing change. It considers the purpose of an embedded value calculation and the effect of differing attitudes to risk. It comments on the recently developed European Embedded Value Principles and sets out the main areas where scope remains to apply judgement.The paper proposes the market-consistent embedded value framework as a way forward to help provide guidance in some of these areas, in particular on the choice of discount rate and on calibration of stochastic techniques used to value embedded options and guarantees. The paper recognises that market-consistent embedded values are in relative infancy and sets out areas for possible future development.

Abstract: As part of an effort to examine the value of intangible assets in the firm, our study is the first to create IT-related intangible asset stocks from firm-level survey data. We also use data on ITrelated business practices in order to understand the distribution of IT-related intangibles, and we create asset stocks to value research and development (R&D) and brand. Using a panel of 130 firms over the period 2003-2006, we find that intangible assets are correlated with significantly higher market values beyond their cost-based measures. Moreover, we estimate that there is a 3055% premium in market value for the firms with the highest organizational IT capabilities (based on a measure of HR practices, management practices, internal IT use, external IT use, and Internet use) as compared to those with the lowest organizational IT capabilities.

Abstract: Owing to the increasing prevalence of value-based methodologies and the competitive and political pressures faced by the industry to improve its performance, the U.K. life insurance industry provides an interesting environment in which to examine whether senior management uses accounting vs. projected cash-flow-based financial performance measures for both managerial performance evaluation and strategic budgetary planning and control purposes. A survey is employed to examine what economic and organizational factors could condition managerial propensity to use three alternative measures: traditional accounting-based measures, Economic Value Added (EVA) and multiperiod, actuarial cash flow based measures such as embedded value (EV). Survey evidence suggests that life insurance CEOs are more likely to use EV for strategic management planning and control purposes, and that this preference is strongly conditioned by the firm's ownership structure. These results support the managerial incentive hypothesis, after controlling for the effects of other organizational structural and behavioural variables that potentially influence the choice of financial performance measure.

Abstract: .We investigate whether fair value information is value relevant within Australian firms in the extractive industries. From 2005, the Australian accounting standard on financial instruments AASB 139 Financial Instruments: Recognition and Measurement requires measurement of financial instruments based on fair values. This study provides evidence that net fair value information is value relevant. However, the significance of net fair value is limited to the recognised financial instruments and some settings. Further analysis provides evidence that the explanatory power of net fair value and the unrealised gain or loss beyond the book value and earnings valued at historical costs is very low.