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 more affected by SFAS 133 will 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.
SFAS 133, Income Smoothing, Hedging, Derivatives, Loan Loss Provisions
Accounting | Corporate Finance
Financial Performance Analysis
American Accounting Association
City or Country
Kilic, Emre; LOBO, Gerald J.; RANASINGHE, Tharindra; and Sivaramakrishnan, K..
The impact of SFAS133 on income smoothing by banks through loan loss provisions. (2013). Accounting Review. 88, (1), 233-260. Research Collection School Of Accountancy.
Available at: http://ink.library.smu.edu.sg/soa_research/984
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