Does it matter who serves on the Financial Accounting Standards Board? Bob Herz’s resignation and fair value accounting for loans

Does it matter who serves on the Financial Accounting Standards Board? Bob Herz’s resignation... On August 24, 2010, Bob Herz, then chairman of the Financial Accounting Standards Board (FASB) resigned unexpectedly. Before his resignation, Herz supported a FASB proposal for applying fair value to loans and cast the deciding vote. This proposal received strong pushbacks from banks and bank regulators. Using an event study methodology, we examine whether Herz’s abrupt resignation changed the market’s expectation on whether the fair value proposal would be finalized. We find that bank investors responded positively to Herz’s resignation, especially banks that would have been affected more by the fair value requirement for loans. They also responded negatively to the initial proposal and positively to the later reversal of the proposal after Herz’s departure. Our results indicate that bank investors believed that Herz’s position on the fair value proposal is crucial to the final outcome of the proposal. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Does it matter who serves on the Financial Accounting Standards Board? Bob Herz’s resignation and fair value accounting for loans

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Publisher
Springer US
Copyright
Copyright © 2014 by Springer Science+Business Media New York
Subject
Economics / Management Science; Accounting/Auditing; Finance/Investment/Banking; Public Finance & Economics
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1007/s11142-014-9301-z
Publisher site
See Article on Publisher Site

Abstract

On August 24, 2010, Bob Herz, then chairman of the Financial Accounting Standards Board (FASB) resigned unexpectedly. Before his resignation, Herz supported a FASB proposal for applying fair value to loans and cast the deciding vote. This proposal received strong pushbacks from banks and bank regulators. Using an event study methodology, we examine whether Herz’s abrupt resignation changed the market’s expectation on whether the fair value proposal would be finalized. We find that bank investors responded positively to Herz’s resignation, especially banks that would have been affected more by the fair value requirement for loans. They also responded negatively to the initial proposal and positively to the later reversal of the proposal after Herz’s departure. Our results indicate that bank investors believed that Herz’s position on the fair value proposal is crucial to the final outcome of the proposal.

Journal

Review of Accounting StudiesSpringer Journals

Published: Jun 15, 2014

References

  • Towards an understanding of the role of standard setters in standard setting
    Allen, A; Ramanna, K
  • CFOs and CEOs: Who have the most influence on earnings management?
    Jiang, J; Petroni, K; Wang, I

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