Market pricing of banks' fair value assets reported under SFAS 157 since the 2008 financial crisis

We investigate how investors price the fair value estimates of assets as required by Statement of Financial Accounting Standards No. 157 (SFAS 157) since the financial crisis in 2008. We observe that Level 3 fair value estimates are typically priced lower than Level 1 and Level 2 fair value estimate...

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Main Authors: GOH, Beng Wee, LI, Dan, NG, Tee Yong Jeffrey, OW YONG, Keng Kevin
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Language:English
Published: Institutional Knowledge at Singapore Management University 2015
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Online Access:https://ink.library.smu.edu.sg/soa_research/1453
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spelling sg-smu-ink.soa_research-24522015-12-17T03:36:18Z Market pricing of banks' fair value assets reported under SFAS 157 since the 2008 financial crisis GOH, Beng Wee LI, Dan NG, Tee Yong Jeffrey OW YONG, Keng Kevin We investigate how investors price the fair value estimates of assets as required by Statement of Financial Accounting Standards No. 157 (SFAS 157) since the financial crisis in 2008. We observe that Level 3 fair value estimates are typically priced lower than Level 1 and Level 2 fair value estimates between 2008 and 2011. However, the difference between the pricing of the different estimates reduces over time, suggesting that as market conditions stabilize in the aftermath of the 2008 financial crisis, reliability concerns about Level 3 estimates dissipated to some extent. Next, we examine whether Level 3 gains affect the pricing of Level 3 estimates because managers have discretion to use Level 3 gains to manage earnings and asset values upwards. We find that differences in Level 3 gains do not lead investors to price Level 3 estimates differently. Finally, we find evidence that the pricing of the Level 1 and Level 2 fair value estimates of assets is lower for banks with lower capital adequacy. Overall, our study contributes to an improved understanding of the relation between valuation and fair value information. 2015-03-01T08:00:00Z text https://ink.library.smu.edu.sg/soa_research/1453 info:doi/10.1016/j.jaccpubpol.2014.12.002 Research Collection School Of Accountancy eng Institutional Knowledge at Singapore Management University Accounting Corporate Finance
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Accounting
Corporate Finance
spellingShingle Accounting
Corporate Finance
GOH, Beng Wee
LI, Dan
NG, Tee Yong Jeffrey
OW YONG, Keng Kevin
Market pricing of banks' fair value assets reported under SFAS 157 since the 2008 financial crisis
description We investigate how investors price the fair value estimates of assets as required by Statement of Financial Accounting Standards No. 157 (SFAS 157) since the financial crisis in 2008. We observe that Level 3 fair value estimates are typically priced lower than Level 1 and Level 2 fair value estimates between 2008 and 2011. However, the difference between the pricing of the different estimates reduces over time, suggesting that as market conditions stabilize in the aftermath of the 2008 financial crisis, reliability concerns about Level 3 estimates dissipated to some extent. Next, we examine whether Level 3 gains affect the pricing of Level 3 estimates because managers have discretion to use Level 3 gains to manage earnings and asset values upwards. We find that differences in Level 3 gains do not lead investors to price Level 3 estimates differently. Finally, we find evidence that the pricing of the Level 1 and Level 2 fair value estimates of assets is lower for banks with lower capital adequacy. Overall, our study contributes to an improved understanding of the relation between valuation and fair value information.
format text
author GOH, Beng Wee
LI, Dan
NG, Tee Yong Jeffrey
OW YONG, Keng Kevin
author_facet GOH, Beng Wee
LI, Dan
NG, Tee Yong Jeffrey
OW YONG, Keng Kevin
author_sort GOH, Beng Wee
title Market pricing of banks' fair value assets reported under SFAS 157 since the 2008 financial crisis
title_short Market pricing of banks' fair value assets reported under SFAS 157 since the 2008 financial crisis
title_full Market pricing of banks' fair value assets reported under SFAS 157 since the 2008 financial crisis
title_fullStr Market pricing of banks' fair value assets reported under SFAS 157 since the 2008 financial crisis
title_full_unstemmed Market pricing of banks' fair value assets reported under SFAS 157 since the 2008 financial crisis
title_sort market pricing of banks' fair value assets reported under sfas 157 since the 2008 financial crisis
publisher Institutional Knowledge at Singapore Management University
publishDate 2015
url https://ink.library.smu.edu.sg/soa_research/1453
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