Value relevance of realized gains and losses on available-for-sale securities

Abstract

Several studies reveal that net income has high value relevance, but once AFS securities gains and losses are realized, such a realization will affect the amount of net income reported. The purpose of this study is to investigate the effect of realized AFS securities gains and losses on firm value (FV). The present study used quarterly financial statements of banks listed at the Indonesia Stock Exchange from 2011 to 2017 and multiple regression analysis. The results of this study reveal that realized gains and losses on AFS securities have a negative effect on firm value, which means that realized gains and losses on AFS securities have value relevance. These findings imply that users of financial statements have considered realized gains and losses on AFS securities when they get information about net income.