Earnings Management and Value Relevance Consequences of SFAS 133: Evidence from Bank Holding Companies

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We examine the impact of SFAS 133, Accounting for Derivative Instruments and Hedging Activities, on the reporting behavior of commercial banks and the informativeness of their financial statements. We argue that because the stricter recognition and classification requirements of SFAS 133 reduced banks' ability to smooth income through derivatives, banks that are more affected by SFAS 133 rely more on loan loss provisions to smooth income. We find evidence consistent with this argument. We also find that the increased reliance on loan loss provisions for smoothing income has impaired the informativeness of loan loss provisions but not the informativeness of earnings before loan loss provisions.


Accounting | Corporate Finance

Research Areas

Financial Performance Analysis


American Accounting Association Annual Meeting

City or Country

San Francisco, CA, USA