Financial disclosures in the European banking sector -An analysis of the Level 3 hierarchy
Sammanfattning
Background:
The
large
reorganisation
of
financial
instruments
in
the
US
banking
sector
prior
to
the
recent
financial
crisis
and
the
effects
related
to
the
crisis,
raise
concerns
of
similar
accounting
disclosures
in
Europe.
The
valuation
of
the
Level
3
financial
instruments
is
based
on
unobservable
inputs
and
the
instruments
shall
be
valued
at
their
fair
value,
in
which
information
asymmetry
may
present
itself
through
the
subjectivity
in
the
valuation
mechanism.
Research
scope:
The
study
is
built
on
the
notion
that
a
high
amount
of
Level
3
financial
instruments
results
in
a
higher
cost
of
capital.
In
relation
to
the
main
objective
we
have
included
control
variables
representing
an
overview
of
a
bank’s
business.
The
control
variables
are
also
subject
to
an
in
depth
analysis.
Research
design:
The
correlation
between
Level
3
instruments
and
the
cost
of
capital
is
examined
through
a
statistical
research,
using
CDS
as
a
proxy
for
the
cost
of
capital.
The
study
consists
of
approximately
50
listed
banks
actively
operating
in
the
European
Union,
reflecting
a
large
proportion
of
the
asset
base
within
the
banking
sector.
The
Level
3
variable
as
well
as
the
control
variables
is
examined
through
a
linear
regression
analysis.
Limitations:
The
study
is
limited
to
banks
within
the
European
Union
as
they
are
subject
to
the
same
economic
regulation.
The
amendments
to
IFRS
7
were
implemented
in
January
of
2009
and
as
such
the
study
encompasses
both
of
the
available
years
in
order
to
establish
a
sound
base
of
analysis.
Empirical
findings:
We
find
no
significant
relationship
between
the
amount
of
Level
3
financial
instruments
and
the
banks
cost
of
capital.
However,
for
2010
the
multiple
regression
analysis
present
depicts
a
significant
relationship
regarding
the
control
variables
as
well
as
exhibiting
a
correlation
to
the
cost
of
capital.
Further
research:
We
propose
that
future
research
include
information
observed
over
a
longer
period
of
time
as
well
as
examines
an
extended
economical
area
due
to
the
difference
in
the
results
received.
Examinationsnivå
Student essay
Fil(er)
Datum
2011-06-29Författare
Bergström, Martin
Åkesson, Patrick
Serie/rapportnr.
Externredovisning
10-11-63M
Språk
eng