Final published version
Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
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TY - JOUR
T1 - The impact of IAS 39 on the risk-relevance of earnings volatility
T2 - Evidence from foreign banks cross-listed in the USA
AU - Duh, Rong Ruey
AU - Hsu, Audrey Wen hsin
AU - Alves, Paulo Alexandre Pimenta
PY - 2012/6
Y1 - 2012/6
N2 - We examine the impact of adopting International Accounting Standard 39 - Financial Instruments: Recognition and Measurement (IAS 39) by non-US commercial banks cross-listed in the US on earnings volatility and its risk relevance. As IAS 39 requires the recognition of unrealized fair-value gains and losses for a larger set of financial and derivative-financial instruments, and the impairment charges for loans and receivables, we expect and find that IAS 39 adoption increased earnings volatility in IFRS-adopting firms from 2005 onwards. Furthermore, both hedge accounting and the fair value option under IAS 39 are designed to reduce mixed-measurement volatility and to improve the sensitivity of firm risk measures to earnings volatility. We also find that the relationship between credit ratings (proxy for risk) and earnings volatility increases for IFRS-adopting firms after 2005. The evidence is consistent with the argument that IAS 39 increases the credit relevance of earnings volatility.
AB - We examine the impact of adopting International Accounting Standard 39 - Financial Instruments: Recognition and Measurement (IAS 39) by non-US commercial banks cross-listed in the US on earnings volatility and its risk relevance. As IAS 39 requires the recognition of unrealized fair-value gains and losses for a larger set of financial and derivative-financial instruments, and the impairment charges for loans and receivables, we expect and find that IAS 39 adoption increased earnings volatility in IFRS-adopting firms from 2005 onwards. Furthermore, both hedge accounting and the fair value option under IAS 39 are designed to reduce mixed-measurement volatility and to improve the sensitivity of firm risk measures to earnings volatility. We also find that the relationship between credit ratings (proxy for risk) and earnings volatility increases for IFRS-adopting firms after 2005. The evidence is consistent with the argument that IAS 39 increases the credit relevance of earnings volatility.
KW - Credit relevance
KW - Fair value accounting
KW - Financial instruments
KW - IAS 39
U2 - 10.1016/j.jcae.2012.03.002
DO - 10.1016/j.jcae.2012.03.002
M3 - Journal article
AN - SCOPUS:84860546087
VL - 8
SP - 23
EP - 38
JO - Journal of Contemporary Accounting and Economics
JF - Journal of Contemporary Accounting and Economics
SN - 1815-5669
IS - 1
ER -