Preserving amortized costs within a fair-value-accounting framework: reclassification of gains and losses on available-for-sale securities upon realization
Tóm tắt
SFAS No. 115 requires firms to recognize available-for-sale (AFS) securities at fair value with accumulated unrealized gains and losses (AUGL) recorded in accumulated other comprehensive income. Firms reclassify AUGL to net income when they realize gains and losses. We refer to the amount reclassified each period by “RECLASS.” As of 1998, SFAS No. 130 requires firms to present RECLASS prominently in their financial statements. We investigate the incremental explanatory power of RECLASS for banks’ market values and market-adjusted returns. In the market value analysis, we control for AUGL, other components of book value of equity, net income before extraordinary items and RECLASS (NIBEXother), and other components of comprehensive income. In the returns analysis, we control for ΔAUGL, ΔNIBEXother, and extraordinary items. We find high positive coefficients on RECLASS in both analyses, consistent with investors pricing RECLASS as a relatively permanent component of net income. Exploring possible explanations for these pricing implications, we find no evidence that they are attributable to RECLASS remedying unreliable fair value measurement of AUGL. We provide three distinct analyses indicating that RECLASS’s pricing implications are explained in significant part by it helping investors predict banks’ future performance. Our results illustrate that an important type of amortized cost accounting information, realized gains and losses, remains highly useful to investors despite the overall fair-value-accounting framework for AFS securities.
Tài liệu tham khảo
Abdel-Khalik, R. (2008). The case against fair value accounting. SEC Comment Letter, 4–573.
Ahmed, A., & Takeda, C. (1995). Stock market valuation of gains and losses on commercial banks’ investment securities: An empirical analysis. Journal of Accounting and Economics, 20, 207–225.
Badertscher, B., Burks, J., & Easton, P. (2012). When a loss is more than just a loss: The market pricing of other-than-temporary impairments. Working paper, University of Notre Dame.
Bamber, L., Jiang, J., Petroni, K., & Wang, I. (2010). Comprehensive income: Who’s afraid of performance reporting. The Accounting Review, 85(1), 97–126.
Barnea, A., Ronen, J., & Sadan, S. (1976). Classificatory smoothing of income with extraordinary items. The Accounting Review, 51(1), 110–122.
Barth, M. (1994). Fair value accounting: Evidence from investment securities and the market valuation of banks. The Accounting Review, 69(1), 1–25.
Barth, M., Beaver, W., & Landsman, W. (1996). Value-relevance of banks’ fair value disclosures under SFAS No. 107. The Accounting Review, 71(4), 513–537.
Beatty, A., Chamberlain, S., & Magliolo, J. (1995). Managing financial reports of commercial banks: The influence of taxes, regulatory capital and earnings. Journal of Accounting Research, 33, 231–261.
Beatty, A., Ke, B., & Petroni, K. (2002). Earnings management to avoid earnings declines across publicly and privately held banks. The Accounting Review, 77, 547–570.
Biddle, G., & Choi, J. H. (2006). Is comprehensive income useful? Journal of Contemporary Accounting and Economics, 2, 1–32.
Chambers, D., Linsmeier, T., Shakespeare, C., & Sougiannis, T. (2007). An evaluation of SFAS No. 130 comprehensive income disclosures. Review of Accounting Studies, 12, 557–593.
Chang, Y., Liu, C., & Ryan, S. (2011). Why banks elected SFAS No. 159’s fair value option: Opportunism versus compliance with the standard’s intent. Working paper, New York University.
Collins, J., Shackelford, D., & Wahlen, J. (1995). Bank differences in the coordination of regulatory capital, earnings, and taxes. Journal of Accounting Research, 33, 263–291.
Cornett, M., McNutt, J., & Tehranian, H. (2009). Corporate governance and earnings management at large U.S. bank holding companies. Journal of Corporate Finance, 15(4), 412–430.
Dhaliwal, D., Subramanyam, K., & Trezevant, R. (1999). Is comprehensive income superior to net income as a measure of firm performance? Journal of Accounting and Economics, 26, 43–67.
Easton, P., & Sommers, G. (2003). Scale and the scale effect in market-based accounting research. Journal of Business Finance and Accounting, 30(1–2), 25–56.
Eccher, A., Ramesh, K., & Thiagarajan, S. (1996). Fair value disclosures by bank holding companies. Journal of Accounting and Economics, 22, 79–117.
Fama, E., & French, K. R. (1992). The cross-section of expected stock returns. Journal of Finance, 47, 427–465.
Fama, E., & French, K. R. (1993). Common risk factors in the returns on stocks and bonds. Journal of Financial Economics, 33, 3–56.
Financial Accounting Standards Board. (1991). Disclosures about fair value of financial instruments. Statement of Financial Accounting Standards No. 107, Stanford, CT.
Financial Accounting Standards Board. (1993). Accounting for certain investments in debt and equity securities. Statement of Financial Accounting Standards No. 115, Stanford, CT.
Financial Accounting Standards Board (FASB). (1997). Reporting comprehensive income. Statement of Financial Accounting Standards No. 130, Stanford, CT.
Financial Accounting Standards Board (FASB). (2010). Accounting for financial instruments and revisions to the accounting for derivative instruments and hedging activities. Exposure draft. Stanford, CT: Financial Accounting Standards Board.
Forbes, S. (2009). End market-to-market. Forbes.com. March 29, 2009.
Hand, J., & Landsman, W. (1998). Testing the Ohlson model: v or not v, that is the question. Working paper, University of North Carolina.
Holthausen, R., & Watts, R. (2001). The relevance of the value-relevance literature for financial accounting standard setting. Journal of Accounting and Economics, 31, 3–75.
Jegadeesh, N., & Titman, S. (1993). Returns to buying winners and selling losers: Implications for stock market efficiency. Journal of Finance, 48, 65–91.
Johnson, L., & Swieringa, R. (1996). Anatomy of an agenda decision: Statement No. 115. Accounting Horizons, 10, 149–179.
Khan, U. (2010). Does fair value accounting contribute to systemic risk in the banking industry? Working paper, Columbia Business School.
Lakonishok, J., Shleifer, A., & Vishny, R. (1994). Contrarian investment, extrapolation, and risk. Journal of Finance, 49, 1541–1578.
Moyer, S. (1990). Capital adequacy ratio regulation and accounting choices in commercial banks. Journal of Accounting and Economics, 13(2), 123–154.
Nelson, K. (1996). Fair value accounting for commercial banks: An empirical analysis of SFAS No. 107. The Accounting Review, 71, 161–182.
Nissim, D., & Penman, S. (2008). Principles for the application of fair value accounting. Columbia Business School Center for Excellence in Accounting & Security Analysis White Paper No. 2, July.
O’Hanlon, J., & Pope, P. (1999). The value relevance of U.K. Dirty Surplus Accounting Flows, British Accounting Review, 31, 459–482.
Ohlson, J. (1995). Earnings, book values, and dividends in equity valuation. Contemporary Accounting Research, 11, 661–687.
Penman, S., & Zhang, X. (2002). Accounting conservatism, the quality of earnings, and stock returns. The Accounting Review, 77(2), 237–264.
Petersen, M. A. (2009). Estimating standard errors in finance panel data sets: Comparing approaches. Review of Financial Studies, 22, 435–480.
Rees, L., & Shane, P. (2012). Academic research and standard setting: The case of other comprehensive income. Accounting Horizons, 26(4), 789–815.
Ronen, J. (2008). To fair value or not to fair value: A broader perspective. Abacus, 44, 181–208.
Ronen, J., & Sadan, S. (1981). Smoothing income numbers: Objectives, means, and implications. Boston, MA: Addison-Wesley Publishing Company.
Schipper, K. (2007). Required disclosure in financial reports. The Accounting Review, 82, 301–326.
Scholes, M., Wilson, G., & Wolfson, M. (1990). Tax planning, regulatory capital planning, and financial reporting strategy for commercial banks. Review of Financial Studies, 3, 625–650.
Schultz, S., & Hollister, J. (2003). Lobbying FASB on accounting for investments. The Journal of Applied Business Research, 19, 85–99.
Sloan, R. (1996). Do stock prices fully reflect information in accruals and cash flows about future earnings? The Accounting Review, 71(3), 289–315.
Teoh, S., Welch, I., & Wong, T. (1998). Earnings management and the underperformance of seasoned equity offerings. Journal of Financial Economics, 50, 63–99.
Wallison, P. (2008). Judgment too important to be left to the accountants. Financial Times. May 1, 2008.
Warfield, T., & Linsmeier, T. (1992). Tax planning, earnings management, and the differential information content of bank earnings components. The Accounting Review, 67(3), 546–562.
Watts, R. (1993). A proposal for research on conservatism, University of Rochester Financial Research and Policy Working Paper Series FR 93-13, May.