The Economic Consequences of Relaxing Fair Value Accounting and Impairment Rules on Banks During the Financial Crisis of 2008-2009

2010 ◽  
Author(s):  
Robert M. Bowen ◽  
Urooj Khan ◽  
Shivaram Rajgopal
Keyword(s):  
Financial Crisis ◽  
Fair Value ◽  
Economic Consequences ◽  
Fair Value Accounting ◽  
Financial Crisis Of 2008

Marking-to-Market, Commonality in Liquidity, and Government Guarantee Effect

2016 ◽  
Vol 32 (1) ◽  
pp. 73-91
Author(s):  
Hawfeng Shyu
Keyword(s):  
Financial Crisis ◽  
Positive Association ◽  
Fair Value ◽  
Market Liquidity ◽  
Economic Consequences ◽  
Vicious Cycle ◽  
Market Prices ◽  
Stock Liquidity ◽  
Government Guarantee ◽  
Value Measurement

Based on market prices and other market inputs to value assets and liabilities, adopting fair-value measurement creates many unpredictable economic consequences, such as amplifying the vicious cycle of falling prices during a worldwide financial crisis. This article investigates whether marking-to-market disclosure affects the commonality in liquidity. Commonality in liquidity is defined as the sensitivity of stock liquidity to the variation in market liquidity. My study indicates that marking-to-market disclosure is associated with higher commonality in liquidity. In addition, I find that higher commonality in liquidity is associated with lower stock liquidity. I also find that a positive association between commonality in liquidity and stock illiquidity is mitigated by the effect of a government guarantee.

Fair value accounting and the financial crisis: a literature-based analysis

2016 ◽  
Vol 14 (1) ◽  
pp. 49-71 ◽  
Author(s):  
Elisa Menicucci ◽  
Guido Paolucci
Keyword(s):  
Financial Crisis ◽  
Literature Review ◽  
Empirical Studies ◽  
Relevant Literature ◽  
Fair Value ◽  
Research Literature ◽  
Fair Value Accounting ◽  
Comprehensive Overview ◽  
Content Type

Purpose The aim of this paper is to review the main results of accounting research literature examining the role of fair value accounting (FVA) within financial crisis. This research analyzes theoretical and empirical studies on the controversial topic about FVA and its alleged pro-cyclicality in the context of the financial crisis to offer solid reflections for improving the fair value research agenda. Design/methodology/approach This paper consists of a descriptive literature review. Theoretical and empirical research studies were investigated and then systematized in a framework to guide a literature-based analysis and critique of the relevant literature published about this topic. Findings The review reveals that there has been only a limited amount of research into the role of FVA within the financial crisis. This topic has not been researched extensively, and there is no empirical evidence that FVA caused the financial crunch and the subsequent financial crisis. Research limitations/implications The restricted amount of literature that directly deals with FVA in the context of the financial crisis is the main limitation of this paper. The specificity of the theme narrows the coverage. However, the adopted research methodology enabled the main contributions concerning this issue to be collected, to realize a concise and comprehensive portrait of the debate surrounding FVA and the financial crisis. Practical implications This paper can be of use to both researchers and practitioners interested in investigating strengths and weaknesses of the fair value concept for accounting purposes. The paper sets out the main findings of the academic literature and identifies future avenues of theoretical and practical research which may support standard setters to draw up improved accounting regulation. Originality/value Few existing studies consist of a literature review that examines theoretical and empirical researches on the influence of FVA on the financial system. This review offers a comprehensive overview on research literature concerning the responsibility of FVA in causing the financial crisis. The main contribution of this paper relates to further understanding the role and effects of accounting matters concerning fair value in a broad sense within the context of the financial crisis.

scholarly journals Fair value accounting and procyclicality: accounting for securitization

2013 ◽  
Vol 11 (1) ◽  
pp. 535-547
Author(s):  
Masaki Kusano
Keyword(s):  
Financial Crisis ◽  
Executive Compensation ◽  
Fair Value ◽  
Fair Value Accounting ◽  
Short Term ◽  
Leverage Ratio ◽  
Parsimonious Model ◽  
The Relationship

The purpose of this study is to examine whether fair value accounting promotes procyclicality by focusing on securitization transactions before the financial crisis. This study demonstrates the relationship between securitization accounting and procyclicality using a parsimonious model. The findings are as follows. Sale accounting increases the capital ratio compared with that before a securitization transaction. Banks’ executives have incentives to increase both assets and debt within the limits of their target capital ratio (leverage ratio) for executive compensation and market reputation; assets (lending) will be increased. When banks conduct securitization transactions and adopt sale accounting to enhance short-term profits, the capital ratio increases under the certain condition. Thus, banks will increase assets (lending) within the limit of their target capital ratio (leverage ratio). As banks increase and expand their lending during economic booms, the economic booms are accelerated. It is expected that both sale accounting and fair value accounting promote procyclicality during economic booms.

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