Abandoning the transactions-based accounting model: Weighing the evidence

Abandoning the transactions-based accounting model: Weighing the evidence I develop a benchmark for evaluating whether fair values disclosed by banks differ from investors' estimates of the market value of financial assets and liabilities. Using this benchmark, I conclude that the hypothesis that disclosed fair values closely approximate investors' estimates should be rejected. I present evidence suggesting that the procedure used in establishing fair values results in an understatement of the value of financial assets an an overstatement of liabilities. I also conclude that the reaction of bank stocks to the adoption of SFAS 105, 107, and 115 is more consistent with regulatory concerns and not with potential adverse effects of those statements for contracting. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting and Economics Elsevier

Abandoning the transactions-based accounting model: Weighing the evidence

Journal of Accounting and Economics, Volume 22 (1) – Aug 1, 1996

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Publisher
Elsevier
Copyright
Copyright © 1996 Elsevier Ltd
ISSN
0165-4101
DOI
10.1016/S0165-4101(96)00442-9
Publisher site
See Article on Publisher Site

Abstract

I develop a benchmark for evaluating whether fair values disclosed by banks differ from investors' estimates of the market value of financial assets and liabilities. Using this benchmark, I conclude that the hypothesis that disclosed fair values closely approximate investors' estimates should be rejected. I present evidence suggesting that the procedure used in establishing fair values results in an understatement of the value of financial assets an an overstatement of liabilities. I also conclude that the reaction of bank stocks to the adoption of SFAS 105, 107, and 115 is more consistent with regulatory concerns and not with potential adverse effects of those statements for contracting.

Journal

Journal of Accounting and EconomicsElsevier

Published: Aug 1, 1996

References

  • An empirical analysis of the economic implications of fair value accounting for investment securities
    Beatty, A.; Chamberlain, S.; Magliolo, J.
  • An investigation of capital market reactions to pronouncements of fair value accounting
    Cornett, M.; Razaee, Z.; Tehranian, H.
  • Value relevance of banks' derivatives disclosures
    Venkatachalam; Mohan

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