Does Fair Value Reporting Affect Risk Management? International Survey Evidence


  • We thank James Ballingall, Bill Christie (Editor), Adrian Crockett, Fred Harbus, Roger Heine, Mary Margaret Myers, Peter Tufano, an anonymous referee, and seminar participants at London Business School, the VI Workshop on Empirical Research in Financial Accounting at the Universidad Carlos III, the Global Issues in Accounting Conference at UNC-Chapel Hill, the University of Arkansas, the University of Exeter, the University of Georgia, and the University of Mannheim for their helpful comments and discussions.


We survey CFOs from 36 countries to examine whether and how firms altered their risk management policies when fair value reporting standards for derivatives were introduced. A substantial fraction of firms (42%) state that their risk management policies have been materially affected by fair value reporting. Firms are more likely to be affected if they seek to use risk management to reduce the volatility of earnings relative to cash flows and if they operate in countries where accounting numbers are more likely to be used in contracting. We document a substantial decrease in foreign exchange hedging and in the use of nonlinear hedging instruments. Finally, firms that take active positions are more likely to be affected by fair value reporting. Taken together, our evidence indicates that requirements to report derivatives at fair values have had a material impact on derivative use; while speculative activities have been reduced, sound hedging strategies have been compromised as well.