Skip to main content
Fachgebiete
Automobil + Motoren Bauwesen + Immobilien Business IT + Informatik Elektrotechnik + Elektronik Energie + Nachhaltigkeit Finance + Banking Management + Führung Marketing + Vertrieb Maschinenbau + Werkstoffe Versicherung + Risiko
DE
EN
Bücher
Zeitschriften
Themenseiten
Organisationspsychologie Projektmanagement Marketing Smart Manufacturing
Weitere Formate
Podcasts Webinare Technik Webinare Wirtschaft Kongresse Veranstaltungskalender Awards
Jetzt Einzelzugang starten
Zugang für Unternehmen
Referenzkunden
SLX-Digitalkonferenz: Zukunftswerkstatt 2024

Mehr Umsatz mit Top-Kontakten

Am 7. Mai erfahren Sie, wie Vertriebsteams Leadgenerierung, Leadnurturing und Leadstrategien effizient steuern können.
Erweiterte Suche
Anmelden
nach oben
Journal of Business Economics
Erschienen in: Journal of Business Economics 9/2015

01.12.2015 | Original Paper

On the relation between the fair value option and bid-ask spreads: descriptive evidence on the recognition of credit risk changes under IFRS

verfasst von: Felix Schneider, Duc Hung Tran

Erschienen in: Journal of Business Economics | Ausgabe 9/2015

Einloggen

Aktivieren Sie unsere intelligente Suche, um passende Fachinhalte oder Patente zu finden.

search-config
loading …

Abstract

This paper investigates the relationship between the use of the fair value option for liabilities (FVO) under IAS 39 and information asymmetry across investors as reflected in bid-ask spreads. Using a sample of European banks for 2006–2010, we find descriptive evidence that banks using FVO exhibit lower bid-ask spreads, relative to non-adopters. We also document that lower bid-ask spreads are still present when the control group of non-adopters is held constant while the treatment group is reduced to adopters that recognise fair value changes attributable to own credit risk changes. Moreover, the comparison of adopters with own credit risk fair value changes to other adopters shows that the recognition of these fair values is not associated with higher bid-ask spreads. Stressing the limitations of our research and highlighting the existence of alternative plausible explanations, our findings appear not to support claims that recognising fair value changes attributable to changes in the own credit risk is detrimental to the transparency of financial statements.
Vorheriger Artikel Fraud characteristics and their effects on shareholder wealth
Nächster Artikel Retraction Note to: Geburtstage

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

  • über 102.000 Bücher
  • über 537 Zeitschriften

aus folgenden Fachgebieten:

  • Automobil + Motoren
  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Elektrotechnik + Elektronik
  • Energie + Nachhaltigkeit
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Maschinenbau + Werkstoffe
  • Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Journal of Business Economics

From January 2013, the Zeitschrift für Betriebswirtschaft (ZfB) is published in English under the title Journal of Business Economics (JBE). The Journal of Business Economics (JBE) aims at encouraging theoretical and applied research in the field of business economics and business administration, promoting the exchange of ideas between science and practice.

Jetzt informieren

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

  • über 67.000 Bücher
  • über 340 Zeitschriften

aus folgenden Fachgebieten:

  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Versicherung + Risiko




Jetzt Wissensvorsprung sichern!

Jetzt informieren
Anhänge
Nur mit Berechtigung zugänglich
Fußnoten
1
When the entity’s credit quality improves this mechanism works vice versa.
 
2
We concentrate on the liabilities side because the main interest of our study is to analyse differences in information asymmetry induced by the counterintuitive recognition of own credit risk changes. These changes only occur on the liabilities side of the balance sheet. Notwithstanding the foregoing, we cannot rule out associations from the joint application of the FVO for assets and liabilities.
 
3
Nevertheless, Bischof et al. (2014b) also note that there is no standard way how analysts process fair value-related information which demonstrates how context specific the processing of fair values is.
 
4
See IFRS 9.4.2.2.
 
5
See IFRS 9.5.7.7 ff.
 
6
See IFRS 9.5.7.8. The rationale behind this approach lies in the IASB’s (2010) view that the recognition of effects that stem from the credit risk of a fair value option liability does not provide useful information unless it prevents or decreases an accounting mismatch.
 
7
Song (2008) examines income statement effects of FVO assets and liabilities as one netted position, resulting in either a gain or a loss.
 
8
The entity here also signalises that the risk of the portfolio is managed by macro hedging techniques that comprise hedges of net positions in a portfolio of assets and liabilities (Whittington 2005).
 
9
In his literature review, Landsman (2007) concludes that the existing overall research findings suggest that fair values are more informative to investors.
 
10
In our analysis we do not regard banks that made use of the FVO under the first, the second or both criteria separately due to rather scarce disclosures regarding this matter. However, this does not affect the appropriateness of our research design since we expect both criteria to have the same association with information asymmetry.
 
11
Moreover, Ball et al. (2012) expect the adoption of the FVO to be detrimental to the quality and quantity of management forecasts since gains and losses from mark-to-market accounting are difficult to forecast which increases the informational disadvantage of uninformed traders. We argue that a possible increase in reporting quality attained through the adoption according to the eligibility criteria under IFRS, which are nonexistent under U.S. GAAP, may be stronger associated with forecasting.
 
12
Alternative dependent variables (e.g. zero-trading days and share turnover) are not employed due to their weaker theoretical background on capturing information asymmetry.
 
13
Consistently, the spearman correlation between LogNUMEST and banks’ market value is around 70 % in our sample. Using alternatively the banks’ market value (4 months after a bank’s fiscal year end) as our size variable (instead of LogNUMEST) leaves the results qualitatively unchanged (untabulated).
 
14
The bank sample used in the calculation of LogBA_CNTRY consists of 671 observations.
 
15
LogBA_CNTRY allows for a more continuous differentiation between countries when compared to country-fixed effects. This variable also possesses a similar effect like country-fix effects since it only varies across countries and not within one single country. Consequently, our results are completely insensitive when country-fixed effects are used instead of LogBA_CNTRY.
 
16
Unfortunately, an analysis based on banks that exclusively select the option for liabilities is not feasible due to an insufficient number of observations. Only 22 observations (out of 453) are available for these banks.
 
17
The concern using bank fixed effects is that our variables of interest are time-invariant for the vast majority of the banks included in the sample. Almost 90 % of the banks do not change from being a non-adopter to being an adopter or vice versa. The fixed effects models are thus estimated for only around 10 % of the total sample. To this end, we also run OLS regressions using heteroskedasticity-robust standard errors clustered by bank (Rogers 1993). All inferences drawn from the main analysis are not affected qualitatively (untabulated).
 
18
In a similar spirit it can be hypothesised that the trigger for the change in credit risk has an influence on information asymmetry: differences might exist between banks that experienced changes in their credit risk as a direct result of a down- or upgrading by a rating agency and others that solely determine the change in credit risk as the residual amount of change in fair value that is not attributable to changes in the market risk. Again, the information disclosed by the banks in our sample regarding this matter is too scarce to analyse possible differences that arise from these factors.
 
19
The sample includes only European banks for two reasons: first, we want to keep the data collection process manageable. Second, we aim at analysing an institutional framework being as homogenous as possible to mitigate confounding effects from institutional differences.
 
20
Due to a relatively small sample size, our analyses use an unbalanced panel data set to maximize statistical power. We examine a potential survivorship bias in our sample twofold: we rerun our entire set of regression models (1) with a balanced data set and alternatively (2) by including an indicator variable equal to 1 if a bank is present in the sample for the entire five years and 0 otherwise. The inferences drawn from the ones reported are not affected qualitatively.
 
21
Thereby, it is noteworthy that 240 out of 262 adopting banks exercise the FVO for both, assets and liabilities revealing an overlap to a high degree.
 
22
In some cases the fair values of liabilities are not disclosed as numerical values but as statements like “the fair values of liabilities do not materially differ from their book values”. We treated these cases as if fair values would be exactly equal to book values.
 
23
However, it has to be noted that this rationale does not apply to liabilities that are eligible because they are part of a contract that contains one or more substantive embedded derivatives.
 
24
We also run a two stage treatment effects model with determinants in the first stage capturing regulatory quality index, Big 4 audit firm, total assets, and leverage. All inferences drawn from the main analyses remain qualitatively the same. Given the difficulties to meet the requirements inherent in the choice of the first-stage variables, a treatment effects model delivers, at the very best, only a very weak indication.
 
Literatur
Ball R, Jayaraman S, Shivakumar L (2012) Mark-to-market accounting and information asymmetry in banks. Working Paper. The University of Chicago and Booth School of Business
Barnea A, Logue DE (1975) The effect of risk on the market maker’s spread. Financ Anal J 31:45–49CrossRef
Barth M (2007) Standard-setting measurement issues and the relevance of research. Account Bus Res 37:7–15CrossRefADS
Barth M, Landsman W (1995) Fundamental issues related to using fair value accounting for financial reporting. Account Horiz 9:97–107
Barth M, Hodder L, Stubben S (2008) Fair value accounting for liabilities and own credit risk. Account Rev 83:629–644CrossRef
Benston G, Hagerman R (1974) Determinants of bid-ask spreads in the over-the-counter market. J Financ Econ 1:353–364CrossRef
Bhushan R (1989) Firm characteristics and analyst following. J Account Econ 11:255–274CrossRef
Bischof J, Brüggemann U, Daske H (2014a) Fair value reclassifications of financial assets during the financial crisis. Working Paper. Goethe-University Frankfurt, Humboldt University Berlin, and University of Mannheim
Bischof J, Daske H, Sextroh C (2014b) Fair value-related information in analysts’ decision processes: evidence from the financial crisis. J Bus Financ Account 41:363–400CrossRef
Brennan MJ, Subrahmanyam A (1995) Investment analysis and price formation in securities markets. J Financ Econ 38:361–381CrossRef
Chasteen LG, Ransom CR (2007) Including credit standing in measuring the fair value of liabilities: let’s pass this one to the shareholders. Account Horiz 21:119–135CrossRef
Chordia T, Roll R, Subrahmanyam A (2008) Liquidity and market efficiency. J Financ Econ 87:249–268CrossRef
Christensen HB, Hail L, Leuz C (2013) Mandatory IFRS reporting and changes in enforcement. J Account Econ 56:147–177CrossRef
Copeland TE, Galai D (1983) Information effects on the bid-ask spread. J Financ 38:1457–1469CrossRef
Daske H, Hail L, Leuz C, Verdi R (2013) Adopting a label: heterogeneity in the economic consequences around IAS/IFRS adoptions. J Account Res 51:495–547CrossRef
Fiechter P, Novotny-Farkas Z (2014) Fair value categorization under IFRS, institutional environment, and the value relevance of fair values. Working Paper. University of Neuchatel and Lancaster University
Gassen J, Schwedler K (2010) The decision usefulness of financial accounting measurement concepts: evidence from an online survey of professional investors and their advisors. Eur Account Rev 19:495–509CrossRef
Gaynor LK, McDanial L, Yohn TL (2011) Fair value accounting for liabilities: the role of disclosures in unraveling the counterintuitive income statement effect from credit risk changes. Account Org Soc 36:125–134CrossRef
Glosten L, Milgrom R (1985) Bid, ask and transaction prices in a specialist market with heterogeneously informed traders. J Financ Econ 14:71–100CrossRef
Healy PM, Palepu KG (2001) Information asymmetry, corporate disclosure and the capital markets: a review of the empirical disclosure literature. J Account Econ 31:405–440CrossRef
Henry E (2009) Early adoption of SFAS no. 159: lessons from games (almost) played. Account Horiz 23:181–199CrossRef
Hirst E, Hopkins P, Wahlen J (2004) Fair values, income measurement, and bank analysts’ risk and valuation judgments. Account Rev 79:453–472CrossRef
Horton J, Macve R, Serafeim G (2011) ‘Deprival value’ vs. ‘fair value’ measurement for contract liabilities: how to resolve the ‘revenue recognition’ conundrum? Account Bus Res 41:491–514CrossRef
International Accounting Standards Board (2010) ED/2010/4 fair value option for financial liabilities, London
Kim O, Verrecchia RE (1991) Trading volume and price reactions to public announcements. J Account Res 29:302–321CrossRef
Koonce LL, Nelson KK, Shakespeare C (2011) Judging the relevance of fair value for financial instruments. Account Rev 86:2075–2098CrossRef
Lachmann M, Wöhrmann A, Wömpener A (2010) Investorenreaktionen auf die Fair Value-Bilanzierung von Verbindlichkeiten nach IFRS: eine experimentelle Untersuchung. J Bus Econ 80:1179–1206CrossRef
Landsman W (2007) Is fair value accounting information relevant and reliable? Evidence from capital market research. Account Bus Res 37:19–30CrossRef
Lang MH, Lundholm RJ (1993) Cross-sectional determinants of analyst ratings of corporate disclosures. J Account Res 31:246–271CrossRef
Leuz C (2003) IAS versus U.S. GAAP: information asymmetry-based evidence from Germany’s new market. J Account Res 42:445–472CrossRef
Leuz C, Verrecchia RE (2000) The economic consequences of increased disclosure. J Account Res 38:91–124CrossRef
Liao L, Kang H, Morris RD, Tang Q (2013) Information asymmetry of fair value accounting during the financial crisis. J Contemp Account Econ 9:221–236CrossRef
Lipe R (2002) Fair valuing debt turns deteriorating credit quality into positive signals for Boston Chicken. Account Horiz 16:169–181CrossRef
Maines L, McDaniel L (2000) Effects of comprehensive-income characteristics on nonprofessional investors’ judgments: the role of financial statement presentation format. Account Rev 75:179–207CrossRef
Merton RC (1974) On the pricing of corporate debt: the risk structure of interest rate. J Financ 29:449–470
Mueller M, Riedl EJ, Sellhorn T (2015) Recognition versus disclosure of fair values. Working Paper. Boston University and WHU
Muller KA, Riedl EJ (2002) External monitoring of property appraisal estimates and information asymmetry. J Account Res 40:865–881CrossRef
Muller KA, Riedl EJ, Sellhorn T (2011) Mandatory fair value accounting and information asymmetry: evidence from the European Real Estate Industry. Manag Sci 57:1138–1153CrossRef
Nobes C (2011) On relief value (deprival value) versus fair value measurement for contract liabilities: a comment and a response. Account Bus Res 41:515–524CrossRef
Penman SH (2007) Financial reporting quality: is fair value a plus or a minus? Account Bus Res 37:33–44CrossRef
Power M (2010) Fair value accounting, financial economics and the transformation of reliability. Account Bus Res 40:197–210CrossRef
Riedl EJ, Serafeim G (2011) Information risk and fair values: an examination of equity betas. J Account Res 49:1083–1122CrossRef
Rock S, Sedo S, Willenborg M (2000) Analyst following and count-data econometrics. J Account Econ 30:351–373CrossRef
Rogers W (1993) Regression standard errors in clustered samples. Stata Tech Bull 3:19–23
Schipper K (2007) Required disclosures in financial reports. Account Rev 82:301–326CrossRef
Song CJ (2008) An evaluation of FAS 159 fair value option: evidence from the banking industry. Working Paper. Virginia Polytechnic Institute and State University
Stoll H (1978) The pricing of security dealer services: an empirical study of NASDAQ stocks. J Financ 33:1153–1172CrossRef
Van Zijl T, Whittington G (2006) Deprival value and fair value: a reinterpretation and a reconciliation. Account Bus Res 36:121–130CrossRef
Welker M (1995) Disclosure policy, information asymmetry and liquidity in equity markets. Contemp Account Res 11:801–827CrossRef
Whittington G (2005) The adoption of international accounting standards in the European Union. Eur Account Rev 14:127–153CrossRef
Metadaten
Titel
On the relation between the fair value option and bid-ask spreads: descriptive evidence on the recognition of credit risk changes under IFRS
verfasst von
Felix Schneider
Duc Hung Tran
Publikationsdatum
01.12.2015
Verlag
Springer Berlin Heidelberg
Erschienen in
Journal of Business Economics / Ausgabe 9/2015
Print ISSN: 0044-2372
Elektronische ISSN: 1861-8928
DOI
https://doi.org/10.1007/s11573-015-0776-2

Weitere Artikel der Ausgabe 9/2015

Journal of Business Economics 9/2015 Zur Ausgabe

Retraction Note

Retraction Note to: Geburtstage

Original Paper

Investment timing under political ambiguity

Original Paper

Fraud characteristics and their effects on shareholder wealth

Original Paper

DEA efficiency of German savings banks: evidence from a goal-oriented perspective

Premium Partner

    Bildnachweise