We provide evidence on how investor valuation of derivative financial instruments differs depending upon whether the fair value of these instruments is recognized or disclosed. Expanded disclosures and accounting practices prior to SFAS No. 133 and mandatory recognition of derivative fair values after SFAS No. 133 provide a natural setting for comparing the valuation implications of recognized and disclosed derivative fair value information. This unique setting mitigates many of the research design problems with recognition versus disclosure studies. Using a sample of banks that simultaneously hold recognized and disclosed derivatives prior to SFAS No. 133, we find that the valuation coefficients on recognized derivatives are significant, whereas the valuation coefficients on disclosed derivatives are not significant. Further, using a sample of banks that have only disclosed derivatives prior to SFAS No. 133, which are recognized after SFAS No.133, we find that while the valuation coefficients on disclosed derivatives are not significant, the valuation coefficients on recognized derivatives are significant. These results are consistent with the view that recognition and disclosure are not substitutes. Our findings suggest that SFAS No. 133 has increased the transparency of derivative financial instruments.

We examine the impact of SFAS 133, Accounting for Derivative Instruments and Hedging Activities, on the reporting behavior of commercial banks and the informativeness of their financial statements. We argue that, because mandatory recognition of hedge ineffectiveness under SFAS 133 reduced banks' ability to smooth income through derivatives, banks that are more affected by SFAS 133 rely more on loan loss provisions to smooth income. We find evidence consistent with this argument. We also find that the increased reliance on loan loss provisions for smoothing income has impaired the informativeness of loan loss provisions for future loan defaults and bank stock returns. Data Availability: The data are available from public sources.

Abstract-Electromagnetic field transformations are important for electromagnetic simulations and for measurements. Especially for field measurements, the influence of the measurement probe must be considered, and this can be achieved by working with weighted field transformations. This paper is a review paper on weighted field transformations, where new information on algorithmic properties and new results are also included. Starting from the spatial domain weighted radiation integral involving free space Green's functions, properties such as uniqueness and the meaning of the weighting function are discussed. Several spectral domain formulations of the weighted field transformation integrals are reviewed. The focus of the paper is on hierarchical multilevel representations of irregular field transformations with propagating plane waves on the Ewald sphere. The resulting Fast Irregular Antenna Field Transformation Algorithm (FIAFTA) is a versatile and efficient transformation technique for arbitrary antenna and scattering fields. The fields can be sampled at arbitrary irregular locations and with arbitrary measurement probes without compromising the accuracy and the efficiency of the algorithm. FIAFTA supports different equivalent sources representations of the radiation or scattering object: 1) equivalent surface current densities discretized on triangular meshes, 2) plane wave representations, 3) spherical harmonics representations. The current densities provide for excellent spatial localization and deliver most diagnostics information about the test object. A priori information about the test object can easily be incorporated, too. Using plane wave and spherical harmonics representations, the spatial localization is not as good as with spatial current densities, but still much better than in the case of conventional modal expansions. Both far-field based expansions lead to faster transformations than the equivalent currents and in particular the orthogonal spherical harmonics expansion is a very attractive and robust choice. All three expansions are well-suited for efficient echo suppression by spatial filtering. Various new field transformation and new computational performance results are shown in order to illustrate some capabilities of the algorithm.

We provide evidence on the effects of SFAS 133 on the risk relevance of accounting measures of bank derivative exposures to bond markets. First, we find that interest rate derivatives classified as hedging are more negatively associated with fixed-rate bond spreads after SFAS 133. We also find that hedging derivatives offset non-trading positions to a greater extent after SFAS 133. Second, for the largest 25 banks, we find that interest and foreign exchange rate trading derivatives are more negatively associated with fixed-rate bond spreads after SFAS 133, consistent with more economic hedges being classified as trading after SFAS 133. For these banks, trading derivative exposures offset non-derivative trading exposures to a greater extent after SFAS 133. Our results suggest that, contrary to critics’ claims, SFAS 133 has increased the risk relevance of accounting measures of derivative exposures to bond investors and benefited banks in terms of reducing their cost of capital.

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