IAS 39 and biases in the risk perception of financial instruments

Jannis Bischof and Michael Ebert

No 07-73, Papers from Sonderforschungsbreich 504

Abstract: There is a wide variety of reporting choices when presenting and disclosing financial instruments under IFRS. Behavioural theory suggests that the label under which a financial instrument is presented affects the risk perception of investors. We analyse in an experimental setting how and why the European reporting practice of presenting financial instruments by measurement categories affects non-professional investors’ risk perception. We find that risk perception depends on management’s choice of a measurement category and not solely on the dimensions of the underlying cash flows. This bias results from an interaction of availability and representativeness effects and calls into question the acceptability of a presentation by measurement category as allowed by IFRS 7.

Keywords: Availability; Derivatives; Experiment; Fair Value; Financial Instruments; IAS 39; Representativeness; Risk Judgment (search for similar items in EconPapers)
JEL-codes: C91 G11 K22 M41 (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:mnh:spaper:2326

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