The Impact of Fair Value Measurement for Bank Assets on Information Asymmetry And the Moderating Effect of Own Credit Risk Gains and Losses

Forthcoming,The Accounting Review DOI/10.2308/accr-52070

Posted: 26 Mar 2018

See all articles by Joana C. Fontes

Joana C. Fontes

UCP - Católica Lisbon School of Business & Economics

Argyro Panaretou

Lancaster University - Lancaster University Management School

Ken V. Peasnell

Lancaster University - Department of Accounting and Finance

Date Written: February 1, 2018

Abstract

We examine whether the use of fair value measurement (FVM) for bank assets reduces information asymmetry among equity investors (bid–ask spread) and how this is affected by the recognition of own credit risk gains and losses (OCR). Our findings show that FVM of assets is associated with noticeably lower information asymmetry and that this reduction is more than twice as large when banks also recognize OCR. In addition, we find that the bid-ask spread is incrementally lower for banks that provide more detailed narrative disclosures on OCR. The findings also indicate that the effects of asset FVM and OCR recognition on the bid-ask spread do not simply capture the differences in the characteristics of the banks and the quality of their information environments.

Keywords: mixed-attribute model; own credit risk; fair value option; financial instruments

JEL Classification: M41

Suggested Citation

Fontes, Joana Cardoso and Panaretou, Argyro and Peasnell, Kenneth V., The Impact of Fair Value Measurement for Bank Assets on Information Asymmetry And the Moderating Effect of Own Credit Risk Gains and Losses (February 1, 2018). Forthcoming,The Accounting Review DOI/10.2308/accr-52070 , Available at SSRN: https://ssrn.com/abstract=3149409

Joana Cardoso Fontes

UCP - Católica Lisbon School of Business & Economics ( email )

Palma de Cima
Lisbon, 1649-023
Portugal

HOME PAGE: http://https://www.clsbe.lisboa.ucp.pt/pt-pt/pessoa/joana-cardoso-fontes

Argyro Panaretou

Lancaster University - Lancaster University Management School ( email )

Bailrigg
Lancaster, LA1 4YX
United Kingdom

Kenneth V. Peasnell (Contact Author)

Lancaster University - Department of Accounting and Finance ( email )

The Management School
Lancaster LA1 4YX
United Kingdom
+44 1524 593631 (Phone)
+44 1524 847321 (Fax)

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