Fair value accounting: information or confusion
for ﬁnancial markets?
Published online: 9 September 2014
Ó Springer Science+Business Media New York 2014
Abstract This paper examines whether and how fair value measurement and
disclosure by US bank holding companies inﬂuences ﬁnancial analysts’ ability to
forecast earnings. Fair value measurement relates to more dispersed forecasts.
Measurement basis disclosure (levels 1, 2 and 3) enacted by SFAS 157 translates
into more accurate forecasts but has neutral effects for banks with a sizable pro-
portion of assets at fair value. Furthermore, level 2 measurement relates to enhanced
forecast accuracy, while level 3 measurement relates to increased forecast disper-
sion. These contrasting results reﬂect analysts’ underlying information environment,
with level 2 measurement translating into higher quality private and public infor-
mation and level 3 into reductions in the quality of private and public information.
Results do not change after controlling for assets’ underlying riskiness. Overall, it
appears that analysts perceive that managers convey useful information through
level 2 ﬁgures but act opportunistically in measuring level 3 fair value ﬁgures.
Keywords Fair value accounting Á Valuation of assets disclosure Á Analysts’
earnings forecasts Á Mandatory disclosure
John Molson School of Business, Concordia University, Montreal, QC, Canada
CIRANO, Montreal, QC, Canada
A. Menini (&) Á A. Parbonetti
Department of Economics and Management, University of Padova, Via del Santo 33, 35123 Padua,
Rev Account Stud (2015) 20:559–591