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IAS 39 and biases in the risk perception of financial instruments

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  • Bischof, Jannis
  • Ebert, Michael

Abstract

There is a wide variety of reporting choices when presenting and disclosing financial instruments under IFRS. Behavioural theory suggests that the label under which a financial instrument is presented affects the risk perception of investors. We analyse in an experimental setting how and why the European reporting practice of presenting financial instruments by measurement categories affects non-professional investors’ risk perception. We find that risk perception depends on management’s choice of a measurement category and not solely on the dimensions of the underlying cash flows. This bias results from an interaction of availability and representativeness effects and calls into question the acceptability of a presentation by measurement category as allowed by IFRS 7.

Suggested Citation

  • Bischof, Jannis & Ebert, Michael, 2007. "IAS 39 and biases in the risk perception of financial instruments," Papers 07-73, Sonderforschungsbreich 504.
    • Handle: RePEc:mnh:spaper:2326
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    File URL: https://madoc.bib.uni-mannheim.de/2326/1/dp07_73.pdf
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    References listed on IDEAS

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    Cited by:

    1. Dirk Simons & Michael Ebert, 2008. "Interne Nutzung des Goodwill-Accounting als Informationsinstrument bei angestrebten Unternehmensübernahmen," Schmalenbach Journal of Business Research, Springer, vol. 60(59), pages 43-68, January.

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    More about this item

    Keywords

    Availability ; Derivatives ; Experiment ; Fair Value ; Financial Instruments ; IAS 39 ; Representativeness ; Risk Judgment;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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