VALUE-RELEVANCE OF BANKS DERIVATIVES DISCLOSURES

This paper investigates the value-relevance of banks' derivatives disc losures provided under SFAS 119. The findings suggest that the fair va lue estimates for derivatives help explain cross-sectional variation i n bank share prices and that the fair values have incremental explanat ory power over and above notional amounts of derivatives. I also condu ct cross-sectional tests to provide preliminary evidence on the useful ness of derivatives disclosures in examining banks' risk-management st rategies. While I find that banks, on average, are reducing their risk exposures using derivatives, further analysis reveals that only 47% o f the sample banks appear to use derivatives to reduce risk.