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The IFRS option to reclassify financial assets out of fair value in 2008: the roles played by regulatory capital and too-important-to-fail status

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The IFRS option to reclassify financial assets out of fair value in 2008 : the roles played by regulatory capital and too-important-to-fail status. / Fiechter, Peter; Landsman, Wayne; Peasnell, Kenneth; Renders, Annelies.

In: Review of Accounting Studies, Vol. 22, No. 4, 12.2017, p. 1698-1731.

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Fiechter, Peter ; Landsman, Wayne ; Peasnell, Kenneth ; Renders, Annelies. / The IFRS option to reclassify financial assets out of fair value in 2008 : the roles played by regulatory capital and too-important-to-fail status. In: Review of Accounting Studies. 2017 ; Vol. 22, No. 4. pp. 1698-1731.

Bibtex

@article{eb99f5b063e4485fb52454258c3bcd9e,
title = "The IFRS option to reclassify financial assets out of fair value in 2008: the roles played by regulatory capital and too-important-to-fail status",
abstract = "Amendment of IAS 39 by the IASB in 2008 provided an option to reclassify investments from fair value to historical cost. We predict that too-important-to-fail (TITF) banks took less advantage of this option because the political protection they enjoyed insulated them from regulatory pressure. Banks that did not enjoy this protection had greater reason to make use of this option since doing so would protect their Tier 1 capital. As predicted, findings reveal that TITF banks made less use of the reclassification option to protect their Tier 1 capital and there is a significant moderating influence of TITF status on the incentive to reclassify investments for banks with lower regulatory capital. This finding is consistent with TITF banks placing less weight on protecting regulatory capital and thereby retaining flexibility to sell assets. Our findings provide evidence that accounting choices are affected by the importance of banks to their economies.",
keywords = "Too important to fail, Fair value accounting, Bank regulation, Financial crisis",
author = "Peter Fiechter and Wayne Landsman and Kenneth Peasnell and Annelies Renders",
note = "The final publication is available at Springer via http://dx.doi.org/10.1007/s11142-017-9419-x",
year = "2017",
month = "12",
doi = "10.1007/s11142-017-9419-x",
language = "English",
volume = "22",
pages = "1698--1731",
journal = "Review of Accounting Studies",
issn = "1380-6653",
publisher = "Springer New York",
number = "4",

}

RIS

TY - JOUR

T1 - The IFRS option to reclassify financial assets out of fair value in 2008

T2 - the roles played by regulatory capital and too-important-to-fail status

AU - Fiechter, Peter

AU - Landsman, Wayne

AU - Peasnell, Kenneth

AU - Renders, Annelies

N1 - The final publication is available at Springer via http://dx.doi.org/10.1007/s11142-017-9419-x

PY - 2017/12

Y1 - 2017/12

N2 - Amendment of IAS 39 by the IASB in 2008 provided an option to reclassify investments from fair value to historical cost. We predict that too-important-to-fail (TITF) banks took less advantage of this option because the political protection they enjoyed insulated them from regulatory pressure. Banks that did not enjoy this protection had greater reason to make use of this option since doing so would protect their Tier 1 capital. As predicted, findings reveal that TITF banks made less use of the reclassification option to protect their Tier 1 capital and there is a significant moderating influence of TITF status on the incentive to reclassify investments for banks with lower regulatory capital. This finding is consistent with TITF banks placing less weight on protecting regulatory capital and thereby retaining flexibility to sell assets. Our findings provide evidence that accounting choices are affected by the importance of banks to their economies.

AB - Amendment of IAS 39 by the IASB in 2008 provided an option to reclassify investments from fair value to historical cost. We predict that too-important-to-fail (TITF) banks took less advantage of this option because the political protection they enjoyed insulated them from regulatory pressure. Banks that did not enjoy this protection had greater reason to make use of this option since doing so would protect their Tier 1 capital. As predicted, findings reveal that TITF banks made less use of the reclassification option to protect their Tier 1 capital and there is a significant moderating influence of TITF status on the incentive to reclassify investments for banks with lower regulatory capital. This finding is consistent with TITF banks placing less weight on protecting regulatory capital and thereby retaining flexibility to sell assets. Our findings provide evidence that accounting choices are affected by the importance of banks to their economies.

KW - Too important to fail

KW - Fair value accounting

KW - Bank regulation

KW - Financial crisis

U2 - 10.1007/s11142-017-9419-x

DO - 10.1007/s11142-017-9419-x

M3 - Journal article

VL - 22

SP - 1698

EP - 1731

JO - Review of Accounting Studies

JF - Review of Accounting Studies

SN - 1380-6653

IS - 4

ER -