We investigate the risk relevance of the standard deviation of three performance measures: net income, comprehensive income, and a constructed measure of full‐fair‐value income for a sample of 202 U.S. commercial banks from 1996 to 2004. We find that, for the average sample bank, the volatility of full‐fair‐value income is more than three times that of comprehensive income and more than five times that of net income. We find that the incremental volatility in full‐fair‐value income (beyond the volatility of net income and comprehensive income) is positively related to marketmodel beta, the standard deviation in stock returns, and long‐term interest‐rate beta. Further, we predict and find that the incremental volatility in full‐fair‐value income (1) negatively moderates the relation between abnormal earnings and banks' share prices and (2) positively affects the expected return implicit in bank share prices. Our findings suggest full‐fair‐value income volatility reflects elements of risk that are not captured by volatility in net income or comprehensive income, and relates more closely to capital‐market pricing of that risk than either net‐income volatility or comprehensiveincome volatility.
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Research Article| March 01 2006
Risk‐Relevance of Fair‐Value Income Measures for Commercial Banks
Leslie D. Hodder;
Patrick E. Hopkins;
Online ISSN: 1558-7967
Print ISSN: 0001-4826
American Accounting Association
The Accounting Review (2006) 81 (2): 337–375.
Leslie D. Hodder, Patrick E. Hopkins, James M. Wahlen; Risk‐Relevance of Fair‐Value Income Measures for Commercial Banks. The Accounting Review 1 March 2006; 81 (2): 337–375. https://doi.org/10.2308/accr.2006.81.2.337
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