IAS 39 and biases in the risk perception of financial instruments

Bischof, Jannis ; Ebert, Michael

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URL: https://ub-madoc.bib.uni-mannheim.de/2326
URN: urn:nbn:de:bsz:180-madoc-23260
Document Type: Working paper
Year of publication: 2007
The title of a journal, publication series: Rationalitätskonzepte, Entscheidungsverhalten und ökonomische Modellierung
Volume: 07-73
Place of publication: Mannheim
Edition: Version July 2, 2008
Publication language: English
Institution: School of Law and Economics > Sonstige - Fakultät für Rechtswissenschaft und Volkswirtschaftslehre
MADOC publication series: Sonderforschungsbereich 504 > Rationalitätskonzepte, Entscheidungsverhalten und ökonomische Modellierung (Laufzeit 1997 - 2008)
Subject: 330 Economics
Classification: JEL: C91 G11 K22 M41 ,
Subject headings (SWD): Derivat <Wertpapier> , Publizitätspflicht , International Financial Reporting Standards , Fair-Value-Bewertung , Anlageverhalten
Keywords (English): Availability , Derivatives , Experiment , Fair Value , Financial Instruments , IAS 39 , Representativeness , Risk Judgment
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.

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