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Fair Value Reclassifications of Financial Assets during the Financial Crisis

Author

Listed:
  • Jannis Bischof
  • Ulf Brüggemann
  • Holger Daske

Abstract

At the peak of the financial crisis in October 2008, the IASB amended IAS 39 to grant companies the option of abandoning fair value recognition for selected financial assets. Using a comprehensive global sample of publicly listed IFRS banks, we find that banks use the reclassification option to forgo the recognition of fair value losses and ultimately the regulatory costs of supervisory intervention. Analyses of stock market reactions suggest that a small subset of the most troubled banks benefit from such reclassifications. However, analyses of related footnote disclosures reveal that two-thirds of reclassifying banks do not fully comply with the accompanying IFRS 7 requirements. These banks experience a significant increase in bid-ask spreads in the long run.

Suggested Citation

  • Jannis Bischof & Ulf Brüggemann & Holger Daske, 2012. "Fair Value Reclassifications of Financial Assets during the Financial Crisis," SFB 649 Discussion Papers SFB649DP2012-010, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  • Handle: RePEc:hum:wpaper:sfb649dp2012-010
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    File URL: http://sfb649.wiwi.hu-berlin.de/papers/pdf/SFB649DP2012-010.pdf
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    References listed on IDEAS

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    Cited by:

    1. Brian Bratten & Monika Causholli & Urooj Khan, 2016. "Usefulness of fair values for predicting banks’ future earnings: evidence from other comprehensive income and its components," Review of Accounting Studies, Springer, vol. 21(1), pages 280-315, March.

    More about this item

    Keywords

    Bank Regulation; Fair Value Accounting; Financial Crisis; IAS 39; IFRS 7;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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