This dissertation comprises three distinct chapters. The first chapter examines whether accounting quality improves for firms voluntarily adopting IFRS by using a single country setting of Swiss firms. The Swiss setting enables isolating the effect of the change from accounting standards from changes in reporting enforcement. I find that voluntary adopters exhibit significant improvement in accounting quality metrics in the post-adoption period. Classifying the adopters in non-serious or serious adopters based on their actual reporting changes around the adoption, I find that the non-serious adopters do not face accounting quality improvements in the post-adoption period. Overall, the evidence points towards the explanation that accounting quality is mainly shaped by reporting incentives. The second chapter examines the new Expected Credit Loss (ECL) model’s impact on the predictability of loan loss provisions (LLP) and potential market discipline consequences. I examine whether the arguably less objective LLP under IFRS 9 obscure market participants’ ability to monitor the banks’ risk-taking incentives. The empirical findings suggest a decrease in the association between loan loss provisions and the incurred loss model determinants in the post-IFRS 9 period, i.e., LLP are based less on objective determinants after IFRS adoption. Furthermore, I find a decrease in the sensitivity of leverage to changes in risk in the post-adoption period of IFRS 9, indicating an attenuated market discipline over banks’ risk-taking. In contrast, I find no changes in the determinants of LLP and market discipline for the benchmark sample of U.S. banks, which were not subject to similar accounting changes during the sample period. The third chapter examines whether banks change the accounting designation of derivatives after ASU 2017-12. I investigate the impact of the new standard on earnings volatility within different groups of derivative users. Using detailed quarterly data on financial derivatives for bank holdings, I find that the level of earnings volatility and the ASU 2017-12 influence the banks’ decisions to use hedge accounting. In assessing the impact within groups of derivative users, I find evidence that banks that designate derivatives for hedge accounting purposes exhibit a lower level of earnings volatility around the adoption of ASU 2017-12 as opposed to banks that elect not to apply hedge accounting. I also find that banks that elect to use hedge accounting for the first time after adopting the standard update exhibit decreased earnings volatility. Overall, the findings confirm the FASB’s initial intention of introducing the accounting standard’s update.
Bank loan loss provisions, risk-taking and bank intangibles