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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 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 -