Information Externalities of SFAS 161: Evidence from Supply Chains

The Accounting Review, Forthcoming

62 Pages Posted: 20 Apr 2017 Last revised: 17 Jul 2020

See all articles by Jing Chen

Jing Chen

Stevens Institute of Technology - School of Business

Yiwei Dou

New York University (NYU) - Department of Accounting

Youli Zou

University of Connecticut

Date Written: July 12, 2020

Abstract

Effective in 2009, SFAS 161 requires enhanced disclosures about derivative use and hedging activities. We test for changes to the information environment of firms whose disclosure policy is unaffected by this standard directly. Using a sample of non-users of derivatives, we find an increase in stock liquidity after their critical customers expand derivative disclosures under SFAS 161. The effect persists for one year and becomes insignificant in subsequent years as the firms dial back their voluntary disclosure. The effect is also more salient for firms that have stronger economic links with their customers and for firms whose customers exhibit more significant improvements in derivative disclosures. The findings suggest that the mandatory derivative disclosures due to SFAS 161 lead to short-term positive information externalities along supply chains.

Keywords: Information externalities; disclosure regulation; market liquidity; hedge accounting; SFAS 161; supply chains

JEL Classification: G32, M41, M48

Suggested Citation

Chen, Jing and Dou, Yiwei and Zou, Youli, Information Externalities of SFAS 161: Evidence from Supply Chains (July 12, 2020). The Accounting Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2954869 or http://dx.doi.org/10.2139/ssrn.2954869

Jing Chen

Stevens Institute of Technology - School of Business ( email )

Hoboken, NJ 07030
United States

Yiwei Dou (Contact Author)

New York University (NYU) - Department of Accounting ( email )

40 West 4th Street
Suite 10-180
New York, NY 10012
United States

Youli Zou

University of Connecticut ( email )

School of Business
Storrs, CT 06269-2041
United States

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