Accounting for Equity Instruments: Does IFRS 9 Deter Gains-Trading or Long-Term Investments? By Professor Jannis Bischof

Jannis Bischof joined the University of Mannheim as a Professor of Accounting in 2015. His research addresses the role of disclosure and transparency in the financial sector and other settings, the regulation of financial institutions, and managerial discretion in reporting decisions. He is Principal in the TRR (SFB/Transregio) 266 Research Center “Accounting for Transparency” and Research Fellow at the Leibniz Institute für Financial Research (SAFE). He is member of the EFRAG’s Financial Instruments Working Group and has consulted, among others, the European Parliament on IFRS endorsement. He is member of the Editorial Board of several international journals (Accounting and Business Research, Business Research, European Accounting Review, Journal of Business Economics).

Prior to joining Mannheim, Jannis Bischof was Professor of Finance & Accounting at Goethe University Frankfurt and Visiting Assistant Professor at the University of Chicago Booth School of Business. He received his PhD from the University of Mannheim. During his PhD studies, he visited Harvard University and ESSEC Business School.

In Mannheim, Professor Bischof is teaching management and cost accounting for both undergrads and MBAs as well as financial reporting and IFRS regulation in several master’s programs. He is also offering a PhD course on Empirical Accounting Research.

IFRS 9 significantly changed the accounting for equity instruments measured at fair value through other comprehensive income (OCI), most notably by eliminating the recycling of unrealized fair value gains and losses into net income upon realization. Under the new rules, banks must either recognize all fair value changes in the profit or loss (P&L) statement or exclude them entirely. The reform sparked political controversy, with standard-setters aiming to curtail incentives for gains trading and opportunistic earnings management, while critics argued that the lack of recycling would discourage long-term equity holdings and harm sustainable investment. Using global data on IFRS 9 adoption by banks, this study presents three main findings. First, banks’ equity investments did decline overall, particularly those previously classified as fair value through OCI. Second, the decline was most pronounced among banks with a record of gains trading and earnings management and for equity instruments most suited to these practices. Third, banks’ long-term equity investments shrank barely, if at all.

Overall, the findings suggest that the presumed negative impact on sustainable investment was overstated. This purported outcome rather served as a convenient political excuse to oppose accounting rules that constrain opportunistic earnings management.