Improving Financial Statement Footnotes: Evidence from Derivative and Hedging Disclosures

56 Pages Posted: 1 Mar 2016 Last revised: 13 Mar 2019

See all articles by Thomas D. Steffen

Thomas D. Steffen

Yale University School of Management

Date Written: March 7, 2019


Motivated by accounting standard setters’ and researchers’ interest in disclosure effectiveness, I investigate the impact of required changes in the content and format of derivative and hedging footnote disclosures caused by SFAS 161. Using a difference-in-differences design, I investigate (1) whether these mandatory disclosure changes affect investor understanding, and (2) which disclosure changes (content vs. format) matter most. I employ textual analysis to quantify these disclosure changes and find that bid-ask spreads are reduced for firms whose disclosures changed more after adopting SFAS 161. However, these same firms do not exhibit reduced return volatility. These findings suggest that the required disclosure changes improved understanding by reducing information asymmetry rather than by reducing uncertainty about firm value. Finally, I show that increased qualitative and more disaggregated quantitative information (i.e., disclosure content) matter more for investor understanding than improved disclosure grouping and tabular display (i.e., disclosure format).

Keywords: disclosure, footnotes, information uncertainty, derivatives, hedging

JEL Classification: M41,G32,M48

Suggested Citation

Steffen, Thomas D., Improving Financial Statement Footnotes: Evidence from Derivative and Hedging Disclosures (March 7, 2019). Available at SSRN: or

Thomas D. Steffen (Contact Author)

Yale University School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

Register to save articles to
your library


Paper statistics

Abstract Views
PlumX Metrics