Informativeness of IFRS 7 sensitivity analysis disclosure on currency risk

Author/s Marco Maria Mattei, Fabrizio Palmucci, Pietro Bonetti
Publishing Year 2011 Issue 2011/2 Language Italian
Pages 30 P. 33-62 File size 746 KB
DOI 10.3280/FR2011-002003
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Using Italian data, we study the usefulness for investors of the sensitivity analysis disclosures on currency risk mandated by IFRS 7. We hypothesize that the new quantitative disclosures affect both stock returns and trading volume sensitivity to exchange rate changes. Our results show that, before the adoption of IFRS 7, investors wrongly assessed firms’ exposures to currency risk, whereas after the release of the new disclosures the market reaction to exchange rate changes seems to align with the quantitative information provided by firms. Moreover, we find that the IFRS 7 disclosures reduce the trading volume sensitivity to exchange rate changes. Overall, our findings integrate the US literature on the informativeness of quantitative disclosures on market risk and suggest that also a backward-looking disclosure is useful for investors.

Keywords: IFRS 7, currency risk, malet risk, sensitivity analysis, disclosure

Marco Maria Mattei, Fabrizio Palmucci, Pietro Bonetti, Analisi di sensitività al tasso di cambio: un’informazione utile per gli investitori? in "FINANCIAL REPORTING" 2/2011, pp 33-62, DOI: 10.3280/FR2011-002003