Finally, we exploit a recent proposal of the IASB that would result in a reclassification of CHBs from equity to liabilities to analyze whether investors perceive a reclassification of equity- labelled CHBs as costly. We therefore analyze capital market reactions of CHB issuing firms to events related to the proposed accounting classification amendment following prior literature the methodology of prior studies (e.g., Beatty et al. 1996; Armstrong et al. 2010). We identify event dates that either increase or decrease the likelihood of a potential reclassification of hybrid bonds from equity to liabilities. We provide a detailed description of the identified event dates from 2015 to 2021 in Panel A of Table 7. We predict that investors respond positively (negatively) to events that increase (decrease) the likelihood of a reclassification of CHBs from equity to debt when the benefits of more useful information outweigh the associated costs of a reclassification. A reclassification can be costly, if it negatively affects issuing firms’ debt-to-equity ratio, debt covenants and results in increased cost of financing that is ultimately borne by shareholders.
Therefore, to the extent that investors perceive the net effect of the potential reclassification as costly, we predict negative market reactions of equity investors to events that increase the likelihood that CHBs will be reclassified from equity to liabilities.
In Panel B of Table 7, we report three-day cumulative abnormal returns (CAR) of hybrid bond issuing firms around the identified event dates along with test statistics that are robust to cross-sectional and event-induced correlation of abnormal returns around event dates due to event date clustering (Kolari and Pynnönen 2010). Overall, our event study results provide some evidence that investors perceive a potential reclassification of hybrid bonds from equity to debt as
costly. We observe significant negative cumulative abnormal returns (˗1.070%, p-value < 5%) around Event 5 when EFRAG clarified that it does not support the IASB’s proposal that would result in a reclassification of hybrid bonds from equity to debt as it would result in excessive implementation costs. Along these lines, we also observe significant positive abnormal returns (1.384%, p-value < 5%) around Event 10 when the IASB ultimately decided not to change the existing classification principles for hybrid bonds. Taken together, our event study results provide evidence that investors perceive the associated costs of a reclassification of hybrid bonds from equity to debt (less debt covenant slack, higher financing costs) to outweigh benefits of potentially more useful financial statement information.
8 Conclusion
In this study, we examine whether accounting classification affects how equity investors perceive CHBs. While CHBs possess both equity- and debt-like characteristics, they are designed to behave like bonds under normal circumstances. Overall, our results suggest that accounting classification influences investors’ perception of CHBs confirming Hopkins’ (1996) experimental findings. First, we find that reporting incentives are the primary drivers of entities’ decision to issue equity-classified CHBs. This findings suggests that managers expect to influence users’ assessment of CHBs by choosing the equity accounting label. Second, our value relevance tests suggest that equity investors perceive CHBs as equity-like instruments when classified as equity in accordance with IAS 32. As such, our findings also contrast with prior findings in the US suggesting that equity investors would see through the accounting classification of hybrid financial instruments (Kimmel and Warfield, 1995; Linsmeier et al. 2020). However, further analyses suggest that better (i.e., separate) presentation of equity-classified CHBs in the balance sheet and income statement changes equity investors’
assessment of CHBs. Third, analyst forecast accuracy (dispersion) decreases (increases) after firms issue equity-classified CHBs, but not after the issuance of debt-classified CHBs. This finding contrasts
with equity analysts’ comments on the IASB’s classification proposals (DP 2018/1) that they would view equity-classified CHBs as debt instruments. Importantly, we also find that better presentation helps analysts to assess equity-classified CHBs.
Finally, when analysing market reactions to events related to the potential reclassification of equity-classified CHBs, we find that both equity investors show negative market reactions to events that increase the likelihood that equity-classified CHBs will be reclassified to liabilities. Our results imply that investors assess the explicit and implicit costs related to the accounting classification change of equity-classified CHBs to exceed any benefits that may arise from the amendment. This finding corresponds to the results of prior studies that examine equity investors’ assessment of a change in the accounting treatment of hybrid financial instruments (Lewis and Verwijmeren, 2014; Marquardt and Wiedman, 2007). Our findings suggest that equity investors perceive the potential reclassification of the hybrid bonds as costly.
These findings are relevant to standard setters. In particular, they support the IASB’s recent decision to improve the presentation and disclosure requirements related to CHBs (IASB, 2021a;
IASB, 2021b). With this step they also cater to the needs of financial statements users who demanded greater visibility of CHBs that would enable them to identify the existence of such hybrid financial instruments and better assess their economic substance (IASB Staff Paper 2021 5F).
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Table 1: Sample selection and distribution
This table reports the selection steps of the initial sample selection for our hybrid bond sample in Panel A. Panel B reports bond characteristics for the senior bond and hybrid bond sample. Panel C provides an overview of the distribution of the number of issuances and the issued volume of hybrid bonds by year, industry, and country in our sample. Volume denotes issue volume in billion USD.
Panel A: Hybrid bond sample selection
No. of firms
No. of bonds
Announce days All subordinated bonds that feature a perpetual or at least 30-year
maturity issued by non-U.S. firms between 2005 and 2020 (Source:
Refinitiv Bond Screener)
538 1,097 852
Less private firms 285 692 522
Less non-IFRS firms 239 565 429
Less financial firms 221 520 408
Less bonds with unclear issuer and/or accounting classification 179 436 336
Less double issuances of bonds 179 421 332
Bonds with characteristics of a hybrid bond 179 421 332
Panel B: Bond characteristics
Senior bonds Hybrid bonds
Full (N=6,749)
Full (N=421)
Equity (N=289)
Debt (N=132)
Avg. amount issued in Mio. USD 411.39 686.63 654.65 756.66
Avg. coupon 3.40% 4.69% 4.88% 4.26%
Avg. maturity in years 7.566 55.712 Perpetual 55.712
Avg. years until first call 4.664 5.595 5.418 5.960
Panel C: Distribution of hybrid bonds
Capital issued by year Capital issued by industry
Year Issues Volume Industry Issues Volume Share
2005 8 6.84 Applied Resources 5 0.62 0.21%
2006 4 3.07 Automobiles & Auto Parts 16 17.97 6.22%
2007 3 1.91 Chemicals 14 9.34 3.23%
2008 2 0.09 Consumer Goods and Services 20 8.58 2.97%
2009 1 0.07 Energy - Fossil Fuels 36 42.99 14.87%
2010 7 6.44 Food, Beverages and Drug Retailing 21 9.48 3.28%
2011 12 5.46 Industrial & Commercial Services 31 11.88 4.11%
2012 21 9.48 Industrial Goods 6 1.00 0.35%
2013 48 33.04 Mineral Resources 24 14.13 4.89%
2014 41 34.73 Pharmaceuticals & Medical Research 15 19.24 6.66%
2015 47 36.92 Real Estate 61 24.46 8.46%
2016 28 17.21 Retailers 4 0.46 0.16%
2017 36 22.88 Software, IT and Telecommunications 11 4.41 1.53%
2018 31 18.41 Telecommunications Services 34 31.03 10.74%
2019 65 40.59 Transportation 13 5.83 2.02%
2020 67 51.93 Utilities 110 87.66 30.32%
Total 421 289.07 Total 421 289.07 100.00%
Table 1 (continued)
Capital issued by country
Country Issues Volume Share Country Issues Volume Share
AT 19 9.28 3.21% IT 11 11.90 4.12%
AU 19 13.71 4.74% JP 34 29.30 10.14%
BE 4 2.09 0.72% KR 13 2.52 0.87%
BM 3 0.78 0.27% LU 23 11.15 3.86%
CA 3 0.72 0.25% MN 1 0.19 0.07%
CH 10 2.33 0.80% MT 1 0.08 0.03%
CL 3 1.45 0.50% MX 5 2.94 1.02%
CN 4 1.88 0.65% MY 2 0.02 0.01%
DE 53 53.48 18.50% NL 4 3.01 1.04%
DK 8 5.69 1.97% NO 3 0.31 0.11%
ES 12 13.09 4.53% NZ 3 0.58 0.20%
FI 16 2.05 0.71% OM 1 0.09 0.03%
FR 62 64.79 22.41% PH 1 0.35 0.12%
GB 28 29.33 10.15% PT 3 2.90 1.00%
HK 14 7.38 2.55% SE 17 6.18 2.14%
IN 8 2.36 0.82% SG 33 7.15 2.47%
Total 266 210.41 72.79% Total 421 289.07 100.00%
Table 2 Descriptive statistics
This table reports summary statistics. Panel A reports descriptive statistics for variables for the sample to estimate regression model (1) to analyze determinants of managers’ choices to issue hybrid bonds (classified as equity). Panel B reports descriptive statistics for the sample to estimate regression model (4) to analyze announcement effects around hybrid bond offerings. Panel C reports descriptive statistics for the sample used to estimate regression model (5) to analyze the value relevance of the book values of hybrid bonds. All variables are defined in Appendix A.1.
Panel A: Determinants sample (H1)
Senior bond issuer Hybrid bond issuer Difference Variable N Mean S.D. P50 N Mean S.D. P50 Diff. t-stat Size 6,007 23.147 1.692 23.158 383 23.833 1.691 24.012 0.686*** 7.702 ROA 6,007 0.064 0.078 0.060 383 0.051 0.041 0.047 -0.013*** 5.659 SDROA 6,007 0.073 0.738 0.036 383 0.048 0.053 0.035 -0.026*** 2.607 Leverage 6,007 0.337 0.164 0.332 383 0.329 0.126 0.312 -0.008 1.145 Tangibility 6,007 0.268 0.238 0.225 383 0.303 0.208 0.287 0.035*** 3.144 InterestCov 6,007 12.654 65.681 5.123 383 13.097 57.993 3.752 0.443 0.144 MTB 6,007 2.057 16.574 1.483 383 1.611 1.789 1.247 -0.446* 1.919 Divpayer 6,007 0.872 0.334 1.000 383 0.922 0.269 1.000 0.050*** 3.464 Cash ETR 6,007 0.208 2.895 0.153 383 0.679 5.794 0.200 0.471 1.579 Credit Rating 6,007 0.142 0.349 0.000 383 0.525 0.500 1.000 0.383*** 14.791 Watchlist 6,007 0.013 0.113 0.000 383 0.016 0.124 0.000 0.003 0.412 AnalystFol 6,007 15.761 10.409 15.000 383 17.376 10.690 17.000 1.615*** 2.874 Covenants 6,007 0.048 0.227 0.000 383 0.019 0.154 0.000 -0.029*** 3.457 Bonus Pay 2,156 0.340 0.246 0.385 145 0.408 0.220 0.430 0.686*** 7.702
Panel B: Announcement effects sample (H2)
Variable N Mean S.D. P25 P50 P75
AccClassInfo 223 0.278 0.449 0.000 0.000 1.000
CAR 2,174 -0.007 0.070 -0.033 -0.004 0.018
Equity 2,174 0.390 0.488 0.000 0.000 1.000
Hybrid 2,174 0.144 0.351 0.000 0.000 0.000
Leverage 2,174 0.344 0.133 0.245 0.338 0.418
MTB 2,174 1.656 1.650 0.826 1.204 1.967
ROA 2,174 0.058 0.053 0.033 0.053 0.078
Size 2,174 23.704 1.768 22.504 23.933 25.016
Tangibility 2,174 0.308 0.213 0.123 0.322 0.462
Panel C: Value relevance sample (H3)
Equity-labelled hybrid bonds Debt-labelled hybrid bonds
Variable N Mean S.D. P50 N Mean S.D. P50
Price 635 32.213 53.897 12.370 203 31.952 39.077 16.081
TAPS 635 103.571 206.241 33.881 203 50.337 53.512 23.127
TLPS 635 67.408 130.526 20.758 203 35.625 41.940 14.319
TLPS (ex HBPS) 203 33.989 40.931 12.911
BVEPS 635 36.163 83.335 8.883 203 14.712 14.607 9.369
BVEPS (ex HBPS) 635 31.798 78.576 7.820
HBPS 635 4.365 9.282 1.263 203 1.635 1.928 0.861
NIPS 635 1.447 5.801 0.366 203 1.436 2.960 0.696
Table 3
Determinants of hybrid bond issuances and equity classification of hybrid bonds (H1)
This table presents the regression results from linear probability regressions as defined in specification (1). In columns (1) and (2), we report results for the determinants of firms’ decision to issue hybrid or senior bonds. The dependent variable Hybrid is an indicator variable that takes value one (zero) if the firm issues a hybrid bond (senior bond). In columns (3) and (4), we report results for the determinants of firms’ decision to issue hybrid bonds classified as equity or debt under IAS 32. The dependent variable EqClass is an indicator variable that takes value one (zero) if the firm issues a hybrid bond classified as equity (debt). All other variables are defined in Appendix A. All continuous variables are standardized to have zero mean and a standard deviation of one. We report robust standard errors clustered at the firm-level in parentheses. ***, **, and * denote significant differences at the 1%, 5%, and 10% levels, respectively.
Hybrid vs. senior bonds Equity vs. debt classification Exp.
sign
Hybrid Hybrid Exp.
sign
EqClass EqClass
(1) (2) (3) (4)
Non-reporting incentives
Size ? 0.006 0.011 ? -0.065* -0.116*
(0.004) (0.008) (0.037) (0.060)
ROA - -0.011*** -0.005 ? -0.038 -0.039
(0.003) (0.005) (0.032) (0.056)
SDROA + -0.004** -0.002 + 0.009 0.060**
(0.002) (0.001) (0.016) (0.030)
Leverage + -0.001 -0.004 + 0.064** 0.083*
(0.003) (0.006) (0.026) (0.046)
Tangibility - -0.002 0.009 ? -0.037 -0.113
(0.004) (0.007) (0.034) (0.071)
InterestCov + 0.004 -0.002 + 0.019 -0.129
(0.003) (0.001) (0.014) (0.114)
MTB + -0.001 -0.001 ? -0.022 -0.042
(0.001) (0.003) (0.036) (0.056)
Divpayer ? 0.015* -0.008 ? -0.102 -0.009
(0.009) (0.018) (0.089) (0.228)
Cash ETR + 0.009 0.000 ? 0.013 0.142
(0.006) (0.001) (0.015) (0.354)
Rating incentives
Credit Rating + 0.146*** 0.185*** ? -0.058 -0.122
(0.013) (0.024) (0.055) (0.084)
Watchlist - -0.141*** -0.130* ? -0.131 0.033
(0.033) (0.070) (0.117) (0.094)
Reporting incentives
AnalystFol ? -0.007 -0.021** + 0.130*** 0.235***
(0.005) (0.010) (0.033) (0.061)
Covenants ? -0.002 + 0.026**
(0.002) (0.010)
Bonus Pay ? 0.008 + 0.086**
(0.006) (0.041)
Observations 6,390 2,301 383 145
Adjusted R² 0.098 0.141 0.325 0.448
Industry-FE Yes Yes Yes Yes
Year-FE Yes Yes Yes Yes
Table 4
Announcement effects of hybrid bond issuances (H2)
This table presents univariate and regression results from estimating specification (4) using cumulative abnormal returns (CAR) around a three-day window of offering announcements as dependent variable. Panel A reports (differences in) CARs around seasoned equity offerings (Equity, Hybrid = 0), straight debt offerings (Debt, Hybrid
= 0), equity-labelled hybrid bonds (Equity, Hybrid = 1) and debt-labelled hybrid bonds (Debt, Hybrid = 1). Robust t- statistics are reported in brackets. In Panel B, we report multivariate results using CAR as dependent variable. Column 1, 3 and 5 replicate univariate results without control variables and fixed effects. In columns 2, 4 and 6 we report results for our full set of controls and fixed effects. In columns 3 and 4 (5 and 7) we report results for a sub-sample of hybrid bonds without (with) information on their accounting classification around their announcement. Equity is an indicator variable that takes value one if the instrument is classified as equity (seasoned equity and equity-classified hybrid bonds), zero otherwise. Hybrid is an indicator variable that takes value one if the instrument is a hybrid bond, zero otherwise. We report robust standard errors in parentheses in Panel B. ***, **, and * denote significant differences at the 1%, 5%, and 10% levels, respectively.
Panel A: Univariate results
Hybrid = 0 (N=1,950)
Hybrid = 1 (N=328)
Difference (N=2,278) Equity
(N=883)
-0.0334***
[11.655]
0.0002 [0.112]
-0.0337***
[6.895]
Debt (N=1,395)
0.0042**
[2.056]
0.0026 [1.137]
0.0015 [0.199]
Difference (N=2,278)
-0.0377***
[10.632]
-0.0024 [0.709]
0.0352***
[7.580]
Panel B: Multivariate results
Full sample AccClassInfo = 0 AccClassInfo = 1
CAR CAR CAR CAR CAR CAR
(1) (2) (3) (4) (5) (6)
Equity (𝛽1) -0.0377*** -0.0346*** -0.0377*** -0.0332*** -0.0377*** -0.0331***
(0.0035) (0.0040) (0.0035) (0.0041) (0.0035) (0.0040) Hybrid (𝛽2) -0.0016 -0.0003 0.0005 0.0075 -0.0229*** -0.0070 (0.0031) (0.0052) (0.0037) (0.0057) (0.0083) (0.0099) Equity×Hybrid (𝛽3) 0.0352*** 0.0332*** 0.0324*** 0.0254*** 0.0555*** 0.0438***
(0.0047) (0.0061) (0.0056) (0.0071) (0.0092) (0.0113)
Size -0.0024* -0.0023 -0.0024
(0.0014) (0.0015) (0.0015)
Leverage 0.0401** 0.0441** 0.0477***
(0.0161) (0.0173) (0.0179)
ROA 0.1190*** 0.1274*** 0.1267***
(0.0354) (0.0372) (0.0390)
Tangibility -0.0099 -0.0102 -0.0076
(0.0068) (0.0070) (0.0073)
MTB -0.0024*** -0.0025*** -0.0024**
(0.0008) (0.0009) (0.0009)
Constant (𝛼) 0.0042** 0.0499 0.0042** 0.0418 0.0042** 0.0440 (0.0021) (0.0339) (0.0021) (0.0363) (0.0021) (0.0360) 𝛽2+ 𝛽3 0.0337*** 0.0329*** 0.0329*** 0.0328*** 0.0326*** 0.0367***
𝛽2+ 𝛽3 = 0 [9.73] [7.36] [7.82] [5.72] [8.36] [6.52]
𝛽1+ 𝛽3 -0.0024 -0.0013 -0.0053 -0.0078 0.0178** 0.0107
𝛽1+ 𝛽3 = 0 [0.81] [0.32] [1.23] [1.35] [2.09] [1.00]
Observations 2,278 2,174 2,121 2,023 2,013 1,924
Adjusted R² 0.0556 0.1329 0.0554 0.1392 0.0550 0.1428
Country-FE No Yes No Yes No Yes
Year-FE No Yes No Yes No Yes
Table 5
Value relevance of hybrid bonds (H3)
This table presents regression results from estimating specification (5) using stock price three months after fiscal year end as dependent variable. Columns 1 and 2 (3 and 4) in Panel A present value relevance results for equity-classified (debt classified) hybrid bonds. In columns 1 and 3 we exclude the book value of hybrid bonds. In columns 2 and 4 we include the book value of hybrid bonds. Columns 1 and 2 (3 and 4) in Panel B present value relevance results for firms with low (high) accounting transparency on equity-classified hybrid bonds. High (low) transparent firms (do not) present the book value (coupon payments) of hybrid bonds separately of book value of equity (earnings) in their balance sheet (income statement). All other variables are defined in Appendix A.1. We report robust standard errors clustered at the firm-level in parentheses. ***, **, and * denote significant differences at the 1%, 5%, and 10% levels, respectively.
Panel A: Value relevance of hybrid bonds (H3a)
Equity-labelled hybrid bonds Debt-labelled hybrid bonds
Price Price Price Price
(1) (2) (3) (4)
TAPS 1.642*** 1.590***
(0.445) (0.517)
TLPS (ex HBPS) -1.743*** -1.699***
(0.509) (0.569)
BVEPS (ex HBPS) 0.616*** 0.553***
(0.093) (0.074)
HBPS 1.179*** -0.581
(0.353) (2.636)
NIPS 1.452*** 1.709*** 1.947** 2.012*
(0.466) (0.578) (0.949) (0.998)
HBPS ≠ |1| (p-value) 0.612 0.227
[t-stat] [0.26] [1.51]
Diff. BVEPS (ex HBPS) -0.063*
[t-stat] [3.28]
Diff. TLPS (ex HBPS) 0.044
[t-stat] [0.16]
Observations 635 635 203 203
Adjusted R² 0.823 0.829 0.772 0.772
Country-FE & Year-FE Yes Yes Yes Yes
Panel B: Effect of accounting transparency on value relevance (H3b)
Low transparency High transparency
Price Price Price Price
(1) (2) (3) (4)
BVEPS (ex HBPS) 0.578*** 0.575*** 0.622*** 0.738***
(0.049) (0.055) (0.058) (0.073)
HBPS 0.607*** -0.349
(0.205) (0.610)
NIPS 1.102*** 1.125*** 1.763*** 1.615***
(0.249) (0.287) (0.626) (0.574)
Diff. BVEPS (ex HBPS) -0.003 0.116*
[t-stat] [0.88] [3.06]
Diff. HBPS (2) vs. (4) -0.956*
[t-stat] [3.65]
Observations 418 418 183 183
Adjusted R² 0.932 0.932 0.952 0.954
Country-FE & Year-FE Yes Yes Yes Yes
Table 6
Effect of hybrid bonds on analyst forecast accuracy
This table presents regression results for the effect of hybrid bonds on analysts’ forecast accuracy. Columns (1) and (2) present results when using analysts’ absolute forecast error (AbsFCError) as dependent variable. Columns (3) and (4) present results when using scaled forecast error (FCError) as dependent variable. Columns (5) and (6) present results when using scaled forecast dispersion (FCDispersion) as dependent variable. Columns (1), (3), and (5) in Panel A present results for firms issuing equity-labelled hybrid bonds (Equity). Columns (2), (4), and (6) in Panel A present results for firms issuing debt-labelled hybrid bonds (Debt). Columns (1), (3), and (5) in Panel B present results for firms that issue equity-classified hybrid bonds without separate disclosure in the balance sheet and income statement (Low). Columns (2), (4), and (6) in Panel B present results for firms that issue equity-classified hybrid bonds with separate disclosure in the balance sheet and income statement (High). Post is an indicator variable equal to one for firm-year observations after hybrid bond issuance, zero otherwise. All other variables are defined in Appendix A.1. We report robust standard errors clustered at the firm-level in parentheses. ***, **, and * denote significant differences at the 1%, 5%, and 10% levels, respectively.
Panel A: Effect on analyst forecast accuracy
AbsFCError FCError FCDispersionLog
Equity Debt Equity Debt Equity Debt
(1) (2) (3) (4) (5) (6)
Post 0.260** 0.012 0.062** 0.022 0.304** -0.072
(0.131) (0.033) (0.026) (0.046) (0.118) (0.102)
Size -0.025 0.048 -0.018* 0.008 0.282*** 0.256*
(0.046) (0.038) (0.011) (0.028) (0.080) (0.131)
AnalystFol -0.020 -0.159*** 0.014 -0.132** -0.032 0.003
(0.063) (0.057) (0.018) (0.051) (0.125) (0.183)
ROA 0.461 0.270 -0.093 -1.013*** -0.340 1.637*
(0.593) (0.535) (0.408) (0.348) (1.004) (0.847)
SDROA 0.755 2.137* 0.254 0.408 4.726*** 13.389**
(1.010) (1.184) (0.278) (0.653) (1.485) (5.352)
Loss 0.367** 0.061 -0.334*** -0.366*** 0.470*** 0.270*
(0.175) (0.073) (0.073) (0.131) (0.151) (0.142)
Leverage -0.521 -0.088 -0.101 -0.176 0.052 -0.303
(0.355) (0.180) (0.082) (0.124) (0.543) (0.556)
Tangibility -0.456 -0.039 -0.055 0.054 -0.574 0.296
(0.292) (0.100) (0.061) (0.071) (0.382) (0.461)
Diff. Post 0.248* 0.04 0.376**
[t-stat] [3.51] [0.65] [6.21]
Observations 1,684 641 1,684 641 1,593 629
Adjusted R² 0.409 0.281 0.173 0.196 0.717 0.726
Country-FE Yes Yes Yes Yes Yes Yes
Industry-FE Yes Yes Yes Yes Yes Yes
Year-FE Yes Yes Yes Yes Yes Yes
Panel B: Effect of accounting transparency on analyst forecast accuracy
AbsFCError FCError FCDispersionLog
Low High Low High Low High
(1) (2) (3) (4) (5) (6)
Post 0.327* -0.027 0.100*** 0.041 0.297** 0.055
(0.167) (0.068) (0.033) (0.041) (0.126) (0.119)
Diff. Post 0.354** 0.059 0.242*
[t-stat] [4.09] [1.38] [3.18]
Controls and FE Yes Yes Yes Yes Yes Yes
Observations 1,186 459 1,186 459 1,118 442
Adjusted R² 0.454 0.369 0.134 0.173 0.748 0.846
Table 7
Investor reactions to proposed reclassification of hybrid bonds
This table presents stock market reactions of hybrid bond issuers to events over the IASB’s FICE project that increase/
decrease the likelihood of a potential accounting re-classification of perpetual hybrid bonds from equity to liabilities.
Panel A reports three-day cumulative abnormal returns (CAR) around the events identified and described in Panel B.
The test statistics are robust to cross-sectional and event-induced correlation of CARs (Kolari and Pynnönen 2010).
We exclude thinly traded return days with less than USD 1,000 daily trading volume from our sample.
Panel A: Description of events
# Date Description
1 09/24/2015 The approach of the timing feature in connection with the amount feature was mentioned for the first time in a working paper by the IASB.
2 06/28/2018 The IASB published the Discussion Paper DP 2018/1. In this paper, the preferred approach consisting of the timing feature and of the amount feature was officially proposed by the IASB.
3 11/01/2018 EFRAG published two statements about the changes mentioned in DP 2018/1. The papers are released as supporting documents to better understand the reporting consequences of the new approach.
4 12/19/2018 EFRAG published a draft report on DP 2018/1. In this report, EFRAG states that the reclassification of PCHBs may result in a potential market disruption for the hybrid bond market.
5 02/01/2019 EFRAG published its comment letter on DP 2018/1. In this letter, EFRAG notes that it does not support the preferred approach mentioned in DP 2018/1, as it would result in high implementation costs.
6 03/21/2019 The IASB released a podcast that addresses the feedback and the comment letters on DP 2018/1. The IASB states that there exist diverse views on the FICE project and that there is variability in the opinions about specific proposals in DP 2018/1.
7 09/27/2019 The IASB decides on an approach that makes clarifying amendments to the underlying principles of the current IAS 32. However, the IASB still considers a change in the accounting treatment for perpetual instruments.
8 10/25/2019 The IASB outlines the practical challenges that it will address during the FICE project, mentioning the classification issues about perpetual instruments. The IASB schedules the commencement period for the accounting treatment of perpetual instruments for the second half of 2020.
9 12/18/2020 The IASB published an update paper where it decided to move the FICE project from the research program to the standard-setting program.
10 02/19/2021 Ultimately, the IASB decided not to change the existing classification principles/outcomes for perpetual financial instruments, but to improve requirements with respect to presentation and disclosure.
Panel B: Event study results
Event Date Exp. sign N CAR t-stat p-value
Event (1) 09/24/2015 ˗ 66 -0.684% 0.867 0.388
Event (2) 06/28/2018 ˗ 87 0.106% 0.147 0.883
Event (3) 11/01/2018 o 87 0.294% 0.594 0.554
Event (4) 12/19/2018 ˗ 87 -0.039% 0.901 0.369
Event (5) 02/01/2019 ˗ 94 -1.070% 2.325 0.022**
Event (6) 03/21/2019 o 94 -0.116% 0.039 0.969
Event (7) 09/27/2019 ˗ 94 0.225% 0.063 0.950
Event (8) 10/25/2019 ˗ 94 0.061% 0.349 0.728
Event (9) 12/18/2020 o 103 -0.298% 0.804 0.423
Event (10) 02/19/2021 + 103 1.384% 2.077 0.040**