IFRS 7 Disclosures and Risk Perception of Financial Instruments

Bischof, J. and M. Ebert (2014): IFRS 7 Disclosures and Risk Perception of Financial Instruments, Schmalenbach Business Review, Vol. 66, pp. 276-308.

42 Pages Posted: 18 Nov 2009 Last revised: 3 Jul 2017

See all articles by Jannis Bischof

Jannis Bischof

University of Mannheim - Accounting and Taxation

Michael Ebert

University of Paderborn

Date Written: November 16, 2009

Abstract

There is a wide variety of reporting choices when presenting and disclosing financial instruments under IFRS 7. Behavioural theory suggests that the label under which a financial instrument is presented affects the risk perception of investors. We analyze in an experimental setting how and why the European reporting practice of presenting financial instruments by measurement categories affects the risk perception of non-professional investors. We find that risk perception is associated with management’s choice of a measurement category. First, there is a direct labeling effect of the measurement categories. Second, there is an indirect effect because investors seem to form certain predictions about which type of financial product is reported under a specific measurement category. These results imply that there should be a more wide-ranging debate about possible presentation formats for financial instruments, as the current format does not necessarily ensure a neutral presentation.

Keywords: Availability, Derivatives, Experiment, Fair Value, Financial Instruments, IAS 39, Representativeness, Risk Judgment

JEL Classification: C91, G11, K22, M41

Suggested Citation

Bischof, Jannis and Ebert, Michael, IFRS 7 Disclosures and Risk Perception of Financial Instruments (November 16, 2009). Bischof, J. and M. Ebert (2014): IFRS 7 Disclosures and Risk Perception of Financial Instruments, Schmalenbach Business Review, Vol. 66, pp. 276-308.. Available at SSRN: https://ssrn.com/abstract=1506966 or http://dx.doi.org/10.2139/ssrn.1506966

Jannis Bischof (Contact Author)

University of Mannheim - Accounting and Taxation ( email )

Mannheim, 68131
Germany

Michael Ebert

University of Paderborn ( email )

Warburger Str. 100
Paderborn, D-33098
Germany

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