Abstract
This study provides evidence that hedge accounting information under SFAS No. 133 is related to rivals’ entry decisions. Using detailed U.S. airline-industry data, I find that potential entrants are less likely to enter routes in which incumbents report higher accumulated other comprehensive income from fuel hedging, an indication of lower future production costs of the incumbents. This relation is stronger when incumbents have more annual report disclosures regarding their fuel hedging, and after SFAS No. 161, a systematic increase in risk management disclosure requirements is implemented. The findings accord with the notion that accounting information and disclosure are relevant to product-market competition, contributing to the financial reporting relevance and the proprietary costs literature.
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