Does Recognition versus Disclosure Matter_ Evidence from Value-Relevance of BanksRecognized and Disc

Does Recognition versus Disclosure Matter_ Evidence from Value-Relevance of BanksRecognized and Disc

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Does Recognition versus Disclosure Matter? Evidence from Value-Relevance of Banks' Recognized and Disclosed Derivative Financial Instruments Author(s): Anwer S. Ahmed, Emre Kilic and Gerald J. Lobo Source: The Accounting Review, Vol. 81, No. 3 (May, 2006), pp. 567-588 Published by: American Accounting Association Stable URL: Accessed: 09-07-2018 20:48 UTC REFERENCES Linked references are available on JSTOR for this article: You may need to log in to JSTOR to access the linked references. JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact [email protected] Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at American Accounting Association is collaborating with JSTOR to digitize, preserve and extend access to The Accounting Review This content downloaded from 200.218.213.80 on Mon, 09 Jul 2018 20:48:19 UTC All use subject to
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THE ACCOUNTING REVIEW Vol. 81, No. 3 2006 pp. 567-588 Does Recognition versus Disclosure Matter? Evidence from Value-Relevance of Banks' Recognized and Disclosed Derivative Financial Instruments Anwer S. Ahmed Texas A&M University Emre Kilic University of Houston Gerald J. Lobo University of Houston ABSTRACT: We provide evidence on how investor valuation of derivative financial in- struments differs depending upon whether the fair value of these instruments is rec- ognized or disclosed. Expanded disclosures and accounting practices prior to SFAS No. 133 and mandatory recognition of derivative fair values after SFAS No. 133 provide a natural setting for comparing the valuation implications of recognized and disclosed derivative fair value information. This unique setting mitigates many of the research design problems with recognition versus disclosure studies. Using a sample of banks that simultaneously hold recognized and disclosed derivatives prior to SFAS No. 133, we find that the valuation coefficients on recognized derivatives are significant, whereas the valuation coefficients on disclosed derivatives are not significant. Further, using a sample of banks that have only disclosed derivatives prior to SFAS No. 133, which are recognized after SFAS No.133, we find that while the valuation coefficients on disclosed derivatives are not significant, the valuation coefficients on recognized derivatives are significant. These results are consistent with the view that recognition and disclosure are not substitutes. Our findings suggest that SFAS No. 133 has increased the trans- parency of derivative financial instruments.
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