The Implementation of SFAS 71, Bank Equity Valuation, and the Moderating Effect of Bank Size

Iman Sofian Suriawinata


This study is the first that investigates the value relevance of SFAS 71 within the banking sector, especially relating to the role of the new accounting standards in reducing the problem of information asymmetry due to bank asset opacity. Using samples consisting of 41 listed banking firms from 2016 to 2020, this study shows that the empirical relationship between the initial implementation of SFAS 71 and bank equity value is inverse U-shaped or concave and that bank size has a negative moderated effect on the relationship between the initial implementation of SFAS 71 and bank equity value. These findings indicate that: (i) at low levels of retained earnings adjustments due to the initial implementation of SFAS 71, the disclosure effect brought by the new accounting standards has a positive relationship with bank equity valuation, (ii) at higher levels of adjustments beyond those previously anticipated by capital market investors, the substantial effect of the new accounting standards has a negative relationship with bank equity valuation, and (iii)  larger banks have more opaque assets and therefore suffer more significant valuation discounts due to the substance effect


SFAS 71, allowance for impairment losses, bank asset opacity, bank equity valuation.

Full Text:



Akerlof, G. A. (1970). The market for “lemons”: Quality uncertainty and the market mechanism. The Quarterly Journal of Economics, 84(3), 488–500.

Avdjiev, S., & Jager, M. (2022). Bank opacity - patterns and implications (No. 992; BIS Working Papers).

Barth, M. E., Li, K., & McClure, C. (2022). Evolution in value relevance of accounting information. The Accounting Review, forthcoming.

Bertsatos, G., & Sakellaris, P. (2016). A dynamic model of bank valuation. Economics Letters, 145, 15–18.

Cao, J., & Juelsrud, R. E. (2022). Opacity and risk-taking: Evidence from Norway. Journal of Banking and Finance, 134(January), 106010. 2020.106010

Caprio, G., Laeven, L., & Levine, R. (2007). Governance and bank valuation. Journal of Financial Intermediation, 16(4), 584–617.

De Jonghe, O., Diepstraten, M., & Schepens, G. (2015). Banks’ size, scope, and systemic risk: What role for conflicts of interest? Journal of Banking & Finance, 61, S3–S13.

DeFond, M. L. (2019). Why accounting matters: Evidence from accounting’s “Big Bang.” Journal of International Accounting Research, 18(3), 87–96.

Diamond, D. W. (1984). Financial intermediation and delegated monitoring. Review of Economic Studies, 51(3), 393–414.

Dye, R. A. (2017). Some recent advances in the theory of financial reporting and disclosures. Accounting Horizons, 31(3), 39–54.

Flannery, M. J., Kwan, S. H., & Nimalendran, M. (2004). Market evidence on the opaqueness of banking firms’ assets. Journal of Financial Economics, 71(3), 419–460.

Fontes, J. C., Panaretou, A., & Peasnell, K. V. (2018). The impact of fair value measurement for bank assets on information asymmetry and the moderating effect of own credit risk gains and losses. The Accounting Review, 93(6), 127–147.

Greene, W. H. (2018). Econometric analysis (8th ed.). Pearson Education, Inc.

Jones, J. S., Lee, W. Y., & Yeager, T. J. (2013). Valuation and systemic risk consequences of bank opacity. Journal of Banking & Finance, 37(3), 693–706.

Khan, U., Li, B., Rajgopal, S., & Venkatachalam, M. (2017). Do the FASB’s standards add shareholder value? The Accounting Review, 93(2), 209–247.

Kladakis, G., Chen, L., & Bellos, S. K. (2020). Bank asset and informational quality. Journal of International Financial Markets, Institutions and Money, 69(November), 101256.

Lofgren, K., Persson, T., & Weibull, J. W. (2002). Markets with asymmetric information: The contributions of George Akerlof, Michael Spence, and Joseph Stiglitz. The Scandinavian Journal of Economics, 104(2), 195–211.

Minton, B. A., Stulz, R. M., & Taboada, A. G. (2019). Are the largest banks valued more highly? The Review of Financial Studies, 32(12), 4604–4652. RFS/HHZ036

Morgan, D. P. (2002). Rating banks: Risk and uncertainty in an opaque industry. American Economic Review, 92(4), 874–888.

Nichols, D. C., & Wahlen, J. M. (2022). The essential role of accounting information in the capital markets: Updating seminal research results with current evidence. Accounting Horizons, forthcoming.

Rosser, J. B. (2003). A Nobel Prize for asymmetric information: The economic contributions of George Akerlof, Michael Spence, and Joseph Stiglitz. Review of Political Economy, 15(1), 3–21.

Sakawa, H., Watanabel, N., Sasaki, H., & Tanahashi, N. (2020). Bank valuation and size: Evidence from Japan. Pacific Basin Finance Journal, 63(October), 101403.

Sapci, A., & Miles, B. (2019). Bank size, returns to scale, and cost efficiency. Journal of Economics and Business, 105, 105842. 2019.04.003

Saunders, A., Cornett, M., & Erhemjamts, O. (2021). Financial institutions management: A risk management approach (10th ed.). McGraw-Hill Education.

Sheehan, R. G. (2013). Valuing core deposits. Journal of Financial Services Research, 43(2), 197–220.

Simoens, M., & Vennet, R. Vander. (2021). Bank performance in Europe and the US: A divergence in market-to-book ratios. Finance Research Letters, 40, 101672.

Tran, D. V., & Ashraf, B. N. (2018). Dividend policy and bank opacity. International Journal of Finance & Economics, 23(2), 186–204.

Tran, D. V., Hassan, M. K., & Houston, R. (2019). Activity strategies, information asymmetry, and bank opacity. Economic Modelling, 83(December), 160–172.

Ueda, K., & Weder di Mauro, B. (2013). Quantifying structural subsidy values for systemically important financial institutions. Journal of Banking and Finance, 37(10), 3830–3842.

Zheng, Y. (2020). Does bank opacity affect lending? Journal of Banking & Finance, 119, 105900.



  • There are currently no refbacks.


The Indonesian Journal of Accounting Research (IJAR)

Editorial Secretariat

Master of Science and Doctoral Programs
Faculty of Economics and Business, Gadjah Mada University

Jl. Nusantara, Bulaksumur Yogyakarta 55281
CP : Novita
Phone  : +62 812-2848-2829
Fax    : +62 274 524606
Email  :

Marketing and Sales Office

Ikatan Akuntan Indonesia
Graha Akuntan, Jl. Sindanglaya No.1 Menteng, Jakarta Pusat 10310
CP : Reza Fauzi
Divisi Pelayanan, Keanggotaan dan Mitra IAI.
Grha Akuntan, Jl. Sindanglaya No.1, Menteng.
Telp.021-31904232 Ext.324/321



ISSN 2086-6887 (Print)
ISSN 2655 - 1748 (online)


Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.