Offsetable Derivatives and Investor Risk Assessment

• 成果类型: Article
• 署名作者: Neilson, Jed J.; Wang, K. Philip; Williams, Christopher D.; Xie, Biqin
• 署名单位: Pennsylvania Commonwealth System of Higher Education (PCSHE); Pennsylvania State University; Pennsylvania State University - University Park; State University System of Florida; University of Florida; University of Michigan System; University of Michigan; United States Department of the Treasury; Office of Financial Research
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2023.4831
• 发表日期: 2024
• 关键词: recognition; disclosure; offsetable derivatives; RISK ASSESSMENT; GAAP; IFRS

摘要

U.S. generally accepted accounting principles (GAAP) allows banks to offset derivative assets against derivative liabilities with the same counterparty and report only the net amount on the balance sheet. Derivative offsetting under international financial reporting standards (IFRS) is much more restrictive, resulting in the single largest differ-ence in balance sheet presentation between U.S. GAAP and IFRS. Two important factors dominate the standard-setting discussion on this issue: (1) whether these derivatives are informative about bank risk and (2) whether disclosing them substitutes for recognition on the balance sheet. Using a hand-collected global sample of banks, we first show that offse-table derivatives are positively associated with bank risk, based on multiple risk measures, suggesting that these derivatives are informative about bank risk. Next, exploiting the dif-ferential accounting treatment across U.S. GAAP and IFRS banks, we find that disclosure versus recognition of offsetable derivatives matters for the risk assessment of equity inves-tors but not for that of (more sophisticated) credit default swap investors. Additional tests corroborate the inference that investor sophistication helps explain the differential investor assessment of recognized versus disclosed offsetable derivatives. Collectively, our findings suggest that offsetable derivatives convey information about bank risk and that, for less sophisticated investors, disclosing them may not substitute for recognizing them