Reliability of Banks' Fair Value Disclosure for Loans

Reliability of Banks' Fair Value Disclosure for Loans This study investigates whether banks manage the disclosed fair value of their major asset, the loan portfolio. Using two cross-section samples, I find evidence that suggests banks manage the fair value of loans. The estimated extent of overstatement of loans' fair value is negatively related to regulatory capital, asset growth, liquidity and the gross book value of loans, and positively related to the change in the rate of credit losses. These relations imply that some banks overstate the disclosed fair value of loans in an attempt to favorably affect the market assessment of their risk and performance. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Reliability of Banks' Fair Value Disclosure for Loans

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2003 by Kluwer Academic Publishers
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1023/A:1024072317201
Publisher site
See Article on Publisher Site

Abstract

This study investigates whether banks manage the disclosed fair value of their major asset, the loan portfolio. Using two cross-section samples, I find evidence that suggests banks manage the fair value of loans. The estimated extent of overstatement of loans' fair value is negatively related to regulatory capital, asset growth, liquidity and the gross book value of loans, and positively related to the change in the rate of credit losses. These relations imply that some banks overstate the disclosed fair value of loans in an attempt to favorably affect the market assessment of their risk and performance.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Oct 17, 2004

References

  • Detecting Abnormal Operating Performance: The Empirical Power and Specification of Test Statistics
    Barber, B. M.; Lyon, J. D.

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