The Association between Stock-Price Interest Rate Sensitivity and Disclosures About Derivative Instruments

Using a sample of publicly traded savings and loan associations, this paper provides evidence that off-balance sheet derivatives activities are positively associated with lower stock-price interest rate sensitivity. Similar to the results for derivatives, on-balance sheet exposures to interest rate changes, as measured by the maturity mismatch of institutions' assets and liabilities, are also value relevant. Currently, the measures used in this study of on- balance sheet interest rate risk and the corresponding impact of derivatives are not required annual report disclosures. Rather, these data are obtained from regulatory filings. The reporting of the impact of derivatives on the corresponding measure of on-balance sheet risk is analogous to the concept of quot;at-riskquot; disclosures for derivatives which have been encouraged by the FASB and SEC. Therefore, the results suggest that the proposed disclosures will provide value-relevant information about interest rate risk for Samp;Ls. Because the value relevance tests suggest that an increased use of derivatives is associated with lower interest rate sensitivity after controlling for on-balance sheet exposure, the results also indicate that Samp;Ls, on average, use derivatives to hedge interest rate risk, rather than to speculate