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Using an international sample of 222 banks from 41 countries, this study examines whether the fair value option (FVO) affects earnings volatility. Prior empirical studies associate higher levels of earnings volatility with fair value accounting (Barth et al. 1995; Hodder et al. 2006). In contrast, I find evidence that banks applying the FVO to reduce accounting mismatches exhibit lower earnings volatility than other banks. I assign this alternative outcome to the optional characteristic of the FVO. Banks can use the flexibility in accounting to reduce artificial earnings volatility. The cross-sectional results are robust against outliers and several model alterations, including controls for endogeneity bias. Furthermore, I predict and find that banks from countries with high regulatory quality are more likely to apply the FVO to reduce accounting mismatches. Overall, the findings confirm the IASB’s initial intention on introducing the FVO. Hence, the study contributes to the current debate on the use of fair values in financial reporting.

We investigate real effects of a widespread corporate social responsibility (CSR) reporting mandate. In 2014, the European Union (EU) passed Directive 2014/95 (hereafter, "CSR Directive"), mandating large listed EU firms to prepare annual nonfinancial reports beginning from fiscal year 2017 onward. We document that firms within the scope of the directive respond by increasing their CSR activities and that they start doing so before the entry-into-force of the directive. These real effects are concentrated in firms that are plausibly more strongly affected by the directive, that is, those with previously low levels of both CSR reporting and CSR activities. Using various alternative outcome variables (e.g., new CSR initiatives, improvements in CSR

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In response to the financial crisis, the IASB issued on 13 October 2008 an amendment to IAS 39 which enables entities to reclassify non-derivative financial assets held for trading and financial assets available-for-sale. This paper examines the influence of this controversial amendment on the 2008 financial statements of 219 European banks which apply IFRS. I find that approximately one-third of the sample banks have taken extensive advantage of these reclassification opportunities. The mean reclassification amount is 3.9% of total assets and 131% of the book value of equity, respectively. I further document that reclassifying banks avoid substantial fair value losses, and hence, report significantly higher levels of return on assets (ROA), return on equity (ROE), book value of equity and regulatory capital. In particular, the mean ROE switches sign from a negative ROE of 21.4% to a positive ROE of 1.3% due to gains from reclassifications. Overall, this paper documents a substantial impact of the amendments on banks' financial statements and suggests analysing these reclassifications with particular caution.