The Information Asymmetry Effects of Expanded Disclosures about Derivative and Hedging Activities

52 Pages Posted: 1 Mar 2016 Last revised: 20 Apr 2020

See all articles by Thomas D. Steffen

Thomas D. Steffen

Yale University School of Management

Date Written: April 18, 2020


I study the information asymmetry effects of SFAS 161, which required changes to the content and format of derivative and hedging footnote disclosures. Using a difference-in-differences design, I investigate whether these mandatory disclosure changes affected bid-ask spreads. To capture the extent to which firms were likely impacted by SFAS 161, I employ two complementary measures: (1) actual changes in firms’ derivative and hedging disclosures, and (2) pre-SFAS 161 levels of firms’ derivative and hedging activities. Both measures provide consistent evidence that bid-ask spreads decreased more for firms whose disclosures were more likely affected by SFAS 161. I also find that increased qualitative information and more disaggregated quantitative data (i.e., disclosure content) matter more than disclosure grouping and tabular display (i.e., disclosure format) for the observed decrease in bid-ask spreads. Overall, my findings suggest that the disclosure changes required by SFAS 161 reduced information asymmetry among investors regarding the effects of derivative and hedging activities on firm value. These results may prove useful to regulators and standard setters as they consider disclosure requirements in other contexts.

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

JEL Classification: M41, G32, M48

Suggested Citation

Steffen, Thomas D., The Information Asymmetry Effects of Expanded Disclosures about Derivative and Hedging Activities (April 18, 2020). 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

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