Accepted author manuscript, 766 KB, PDF document
Available under license: CC BY: Creative Commons Attribution 4.0 International License
Final published version
Licence: CC BY: Creative Commons Attribution 4.0 International License
Research output: Contribution to Journal/Magazine › Journal article › peer-review
| <mark>Journal publication date</mark> | 31/12/2023 |
|---|---|
| <mark>Journal</mark> | Review of Accounting Studies |
| Issue number | 4 |
| Volume | 28 |
| Pages (from-to) | 2556–2588 |
| Publication Status | Published |
| Early online date | 26/07/22 |
| <mark>Original language</mark> | English |
Motivated by the debate about the introduction of the fair value option for (financial) liabilities (FVOL) and the requirement to recognize and separately disclose in financial statements debt valuation adjustments (DVAs), this study explores what we can learn about a firm’s credit risk from DVAs. Using a sample of US bank holding companies that elect the FVOL, we show that DVAs generally cannot be explained by the same factors that explain contemporaneous changes in bank’s credit quality. We further find that DVAs can explain future changes in credit risk when the fair value of liabilities is based on managerial inputs (Level 3). Overall our results suggest that managers have an information advantage in estimating credit risk and that DVAs provide inside information to the market.