Usefulness of Interest Income Sensitivity Disclosures

61 Pages Posted: 8 Feb 2017 Last revised: 15 Dec 2019

See all articles by Mei Cheng

Mei Cheng

University of Arizona - Department of Accounting

Leslie D. Hodder

Indiana University - Kelley School of Business - Department of Accounting

Jessica Watkins

University of Notre Dame

Date Written: December 14, 2019

Abstract

We document multiple dimensions of usefulness of banks’ interest income sensitivity disclosures. First, we find management-generated sensitivity measures are predictive of future realized changes in net interest income. Second, we find financial analysts’ forecasts of net interest income reflect information provided by interest income sensitivity disclosures. Third, we find equity market responses to interest rate shocks as well as firms’ interest rate betas are larger for banks with greater disclosed sensitivity of net interest income to interest rate changes. Across all of these tests, the informativeness of income sensitivity measures is incremental to that of regulatory data. These results suggest that interest income sensitivity disclosures are informative measures of interest rate risk. Our results contradict assertions that these disclosures are useless due to lack of relevance of income sensitivity, poor modeling techniques, and/or redundancy relative to regulatory data.

Keywords: interest income sensitivity disclosures, interest rate risk, disclosure usefulness

JEL Classification: G21, M41

Suggested Citation

Cheng, Mei and Davis Hodder, Leslie D. and Watkins, Jessica, Usefulness of Interest Income Sensitivity Disclosures (December 14, 2019). Kelley School of Business Research Paper No. 17-13, Available at SSRN: https://ssrn.com/abstract=2912446 or http://dx.doi.org/10.2139/ssrn.2912446

Mei Cheng

University of Arizona - Department of Accounting ( email )

Tucson, AZ 85721
United States

Leslie D. Davis Hodder (Contact Author)

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

Jessica Watkins

University of Notre Dame ( email )

384 Mendoza College of Business
Notre Dame, IN 46656
United States

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