A critical analysis of “fair value” as a valuation method in the Italian financial statement

Abstract

In this paper study, we delve into the intricate landscape of Italian financial reporting, focusing our lens on the inclusion of derivative financial instruments for fiscal years commencing on or after 1 January 2016. Specifically, the study aims to understand the extent to which these instruments are integrated into company financials and evaluate the impact of recognizing derivatives at fair value on the Return on Investment (ROI) Index. Focusing on the analysis, it is used a substantial dataset that comprises more than 750 firms over three years. It examines whether the possession of derivative financial instruments is a distinguishing factor in Italian financial reporting and if the shift to fair value recognition has a statistically significant influence on the ROI Index. Additionally, the study explores potential variations when the dataset is segmented by geography and company size, as well as by employee count. Moreover, the findings challenge conventional expectations, revealing that the presence of derivative financial instruments fails to wield significant influence on financial statements or induce some shifts in ROI values. Even when the dataset is stratified based on geographic regions or company workforce size, no statistically significant effects were observed. Finally, this research contributes original insights into the treatment of derivative financial instruments in Italian financial reporting following the implementation of fair value recognition rules. The study's use of a large dataset and its exploration of various segmentation factors provide valuable perspectives on the impact of these accounting changes on financial performance metrics.