THE USEFULNESS OF CHILEAN INFLATION ACCOUNTING

This study examines the usefulness to investors of the “monetary correction” (corrección monetaria) required under Chilean accounting standards. The monetary correction arises when nonmonetary assets and liabilities and owners’ equity are restated for changes in the purchasing power of the Chilean peso, and when assets and liabilities denominated in other currencies are restated for changes in the exchange rate between that currency and the Chilean peso. We provide three separate sets of empirical results that examine the relation between the monetary correction and both unexpected returns and security prices, conditional on the remainder of reported earnings. Taken together, the results suggest that the monetary correction provides useful information for investors.