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How Does Fair Value Measurement under IAS 39 Affect Disclosure Choices of European Banks?

Jannis Bischof () and Jens Wüstemann ()
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Jannis Bischof: Sonderforschungsbereich 504, Postal: L 13, 15, D-68131 Mannheim
Jens Wüstemann: Lehrstuhl für ABWL und Wirtschaftsprüfung/Sonderforschungsbereich 504, Postal: L 13, 15, D-68131 Mannheim

No 07-75, Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim, Sonderforschungsbereich 504, University of Mannheim

Abstract: There is a considerable degree of heterogeneity in the way how European banks present their financial instruments in IFRS financial statements. We identify three major presentation formats that are currently applied: a presentation by measurement category, by product, and by purpose. We find the use of the measurement categories, which were originally designed by IAS 39 for measurement purposes, as line items to be the prevalent choice across countries. We analyze the factors that could explain this disclosure choice. We find that a corresponding regulatory recommendation has a strong effect on the choice. We further find that the disclosure of measurement categories is negatively associated with the relative book value of financial assets measured at fair value. This finding suggests discretionary disclosure management by banks. We conclude, based on behavioral theory, that banks expect investors to have a negative bias in the risk perception of assets measured at fair value.

Pages: 23 pages
Date: 2007-08-31
Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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