Income statement effects of derivative fair value accounting: evidence from bank holding companies
SFAS 133 requires most types of hedge ineffectiveness to be measured on a fair value basis and reported in earnings. This earnings recognition requirement was the focal point of controversy surrounding the adoption of SFAS 133. The debate also reflects the more general controversy over whether to recognize fair-value-based gains or losses into earnings. Using a sample of bank holding companies, I find evidence that the recognition of the fair-value-based hedging performance measure under SFAS 133 improves the value and risk relevance of accounting earnings. The findings of this study are relevant to the evaluation of SFAS 133 as well as the ongoing debate on the income statement treatment of net asset changes due to the application of fair value accounting.
Fair-value Income Measures, Statement of Financial Accounting Standards No. 133 (SFAS 133), Derivatives
University of Illinois - Urbana-Champaign
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University of Illinois at Urbana-Champaign