Linked Balance Sheet Presentation
49 Pages Posted: 9 Jun 2017 Last revised: 13 Jun 2019
Date Written: June 12, 2019
Certain financial statement items are closely related, such as items in hedging relationships. In this paper, we develop theory and conduct two experiments to investigate three different balance sheet presentation formats for related financial statement items. We posit that a linked presentation format rarely used in practice allows financial statement users to better distinguish among firms with different economics. Neither net presentation nor separate presentation of related balance sheet items allows users to make this distinction. The results of two experiments—one in a hedging context and the other in a lending context—support our theory-based predictions.
Keywords: financial statements, linked presentation, causal reasoning
JEL Classification: D81, M41
Suggested Citation: Suggested Citation