Critical evaluation and analysis of the effects of the International Financial Reporting Standards on the volatility earnings of Banks with reference to systemic risk crises and moral hazards

Abstract

This paper reviews the literature and discusses existing definitions and concepts of systemic risk and moral hazard. The theoretical causes and dynamics are considered, in a general framework and with the special reference to International Financial Reporting Standards (IFRS). The work analyses the level of homogeneity and the concept of fair value within the international standards. IFRS has changed the level of transparency, stability, market discipline as well as the degree of monitoring. These modifications affect the problems of systemic risk and moral hazard for which an empirical concept is developed. As one of the most important financial information balance sheets of different banks are compared before and after the introduction of IFRS. The analysis result in the findings that the implementation of IFRS has not been as value-relevant as many market participants might had expected and that it has not had any significant impact on the level of systemic risk or moral hazard in financial markets so far.