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IFRS 7 Disclosures and Risk Perception of Financial Instruments

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Schmalenbach Business Review Aims and scope

Abstract

There are many choices when reporting and disclosing financial instruments under IFRS 7. Behavioral theory suggests that the label used to present a financial instrument affects investors’ risk perception. We use an experimental setting to analyze how and why the European practice of reporting financial instruments by measurement categories affects the risk perception of nonprofessional investors. We find that risk perception is associated with management’s choice of a measurement category. Our results imply that there should be a wider debate about possible presentation formats for financial instruments, as the current format does not necessarily ensure a neutral presentation.

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Authors and Affiliations

  1. Goethe University, 60323, Frankfurt am Main, Germany

    Jannis Bischof (Helaba Endowed Chair of Accounting & Finance)

  2. University of Mannheim, Schloss Ostfluegel, 68131, Mannheim, Germany

    Michael Ebert (Chair of Business Administration and Accounting)

Authors
  1. Jannis Bischof
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  2. Michael Ebert
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Correspondence to Jannis Bischof.

Additional information

We thank Wolfgang Dick (ESSEC Business School), Hermann Jahnke (University of Bielefeld), and Stefan Wielenberg (Leibniz University of Hannover) for the opportunity to conduct the experiments in their graduate accounting courses. Financial support from the DFG Deutsche Forschungsgemeinschaft (German National Science Foundation), the J.P. Stiegler Foundation (Mannheim), the German Academic Association for Business Research (VHB), and the Schmalenbach Society (Cologne) is gratefully acknowledged. We are also grateful for the helpful comments of two anonymous referees, Holger Daske, Fredrik Ericsson, Christopher Koch, Edgar Löw, Sarah Rice, Eddie Riedl, Bill Simpson, and seminar participants at the University of Mannheim, the ESSEC Business School, the National Research Center on Concepts of Rationality, Decision Making and Economic Modeling (SFB 504), the ARA Workshop in Bielefeld, the EAA Annual Congresses in Lisbon and Rotterdam, the AAA Annual Congress in Anaheim, the Workshop on Accounting in Europe in Lund, as well as the VHB Annual Congress in Berlin. We wish to thank Anne Hannusch and Matthias Nicolmann for their excellent research assistance.

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Bischof, J., Ebert, M. IFRS 7 Disclosures and Risk Perception of Financial Instruments. Schmalenbach Bus Rev 66, 276–308 (2014). https://doi.org/10.1007/BF03396908

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