The Experts below are selected from a list of 11163 Experts worldwide ranked by ideXlab platform

Catherine Shakespeare - One of the best experts on this subject based on the ideXlab platform.

  • Fair Value Accounting for financial instruments does it improve the association between bank leverage and credit risk
    The Accounting Review, 2013
    Co-Authors: Elizabeth Blankespoor, Thomas J Linsmeier, Kathy R Petroni, Catherine Shakespeare
    Abstract:

    ABSTRACT : Many have argued that financial statements created under an Accounting model that measures financial instruments at Fair Value would not Fairly represent a bank's business model. In this study we examine whether financial statements using Fair Values for financial instruments better describe banks' credit risk than less Fair-Value-based financial statements. Specifically, we assess the extent to which various leverage ratios, which are calculated using financial instruments measured along a Fair Value continuum, are associated with various measures of credit risk. Our leverage ratios include financial instruments measured at (1) Fair Value; (2) U.S. GAAP mixed-attribute Values; and (3) Tier 1 regulatory capital Values. The credit risk measures we consider are bond yield spreads and future bank failure. We find that leverage measured using the Fair Values of financial instruments explains significantly more variation in bond yield spreads and bank failure than the other less Fair-Value-based lev...

  • Fair Value Accounting for financial instruments does it improve the association between bank leverage and credit risk
    Social Science Research Network, 2012
    Co-Authors: Elizabeth Blankespoor, Thomas J Linsmeier, Kathy R Petroni, Catherine Shakespeare
    Abstract:

    Many have argued that financial statements created under an Accounting model that measures financial instruments at Fair Value would not Fairly represent a bank’s business model. In this study we examine whether financial statements using Fair Values for financial instruments better describe banks’ credit risk than less Fair-Value-based financial statements. Specifically, we assess the extent to which various leverage ratios, which are calculated using financial instruments measured along a Fair Value continuum, are associated with various measures of credit risk. Our leverage ratios include financial instruments measured at 1) Fair Value; 2) US GAAP mixed-attribute Values; and 3) Tier 1 regulatory capital Values. The credit risk measures we consider are bond yield spreads and future bank failure. We find that leverage measured using the Fair Values of financial instruments explains significantly more variation in bond yield spreads and bank failure than the other less Fair-Value-based leverage ratios in both univariate and multivariate analyses. We also find that the Fair Value of loans and deposits appear to be the primary sources of incremental explanatory power.

  • Fair Value Accounting and gains from asset securitizations a convenient earnings management tool with compensation side benefits
    Journal of Accounting and Economics, 2010
    Co-Authors: Patricia M Dechow, Linda A Myers, Catherine Shakespeare
    Abstract:

    Accounting rules for valuing retained interest from securitizations require management to make assumptions concerning discount rates, default rates, and prepayment rates. These assumptions provide management with discretion to determine the "gain on sale" of the receivables. We investigate whether CEO compensation is less sensitive to securitization gains than to other earnings components in the presence of proxies for how independent (outsiders, females, fewer CEO-selected directors) and informed (financial expertise) directors are. Overall, our results do not suggest that better "monitoring" reduces earnings management or CEO pay-sensitivity to reported securitization gains. Our results suggest that CEOs are rewarded for the gains they report and boards do not intervene.

  • Fair Value Accounting and gains from asset securitizations a convenient earnings management tool with compensation side benefits
    2009
    Co-Authors: Patricia M Dechow, Linda A Myers, Catherine Shakespeare
    Abstract:

    We provide evidence that managers use the discretion afforded by Fair-Value Accounting rules to manage the size of reported securitization gains. We show that the ambiguity allowed in discount rate choice is one way that managers can influence these gains. We investigate whether CEO compensation is less sensitive to securitization gains than to other earnings components in the presence of proxies for how independent (outsiders, females, fewer CEO-selected directors) and informed (financial expertise) directors are. We find weak evidence of less earnings management in firms with more independent boards, but find no evidence that our director characteristics influence CEO pay-sensitivity to the gains. Thus, boards do not appear to intervene and adjust compensation for implementation problems related to Fair-Value Accounting rules for securitizations.

Mary E. Barth - One of the best experts on this subject based on the ideXlab platform.

  • the contribution of bank regulation and Fair Value Accounting to procyclical leverage
    Review of Accounting Studies, 2017
    Co-Authors: Amir Amelzadeh, Mary E. Barth, Wayne R Landsman
    Abstract:

    Our analysis of how banks’ responses to asset price changes can result in procyclical leverage reveals that, for banks with a binding regulatory leverage constraint, absent differences in regulatory risk weights across assets, procyclical leverage does not occur. For banks without a binding constraint, Fair Value and bank regulation both can contribute to procyclical leverage. Empirical findings based on a large sample of U.S. commercial banks reveal that bank regulation explains procyclical leverage for banks relatively close to the regulatory leverage constraint and contributes to procyclical leverage for those that are not. We also show that Fair Value Accounting does not contribute to procyclical leverage.

  • The Contribution of Bank Regulation and Fair Value Accounting to Procyclical Leverage
    SSRN Electronic Journal, 2013
    Co-Authors: Amir Amel-zadeh, Mary E. Barth, Wayne R Landsman
    Abstract:

    Our analytical description of how banks’ responses to asset price changes can result in procyclical leverage reveals that for banks with a binding regulatory leverage constraint, absent differences in regulatory risk weights across assets, procyclical leverage does not occur. For banks without a binding constraint, Fair Value and bank regulation both can contribute to procyclical leverage. Empirical findings based on a large sample of US commercial banks reveal that bank regulation explains procyclical leverage for banks relatively close to the regulatory leverage constraint and contributes to procyclical leverage for those that are not. We also show that Fair Value Accounting does not contribute to procyclical leverage by finding (i) the portion of comprehensive income attributable to Fair Value Accounting, i.e., Fair Value comprehensive income, has a negative relation with change in leverage as expected for any increase in equity, (ii) no evidence of a positive relation between Fair Value comprehensive income and banks’ net purchases of assets, and (iii) the relation between change in leverage and Fair Value comprehensive income is more negative than that between change in leverage and change in equity.

  • Fair Value Accounting earnings management and the use of available for sale instruments by bank managers
    2012
    Co-Authors: Mary E. Barth, Javier Gomezbiscarri, Ron Kasznik, Germain La Pezespinosa
    Abstract:

    Fair Value Accounting in banking has been criticized for the increased volatility that it generates in some Accounting variables. One of its advantages, however, is that it reduces the possibility of discretionary earnings management, given that all gains and losses are immediately recognized. In this paper we qualify both considerations. The Accounting regime of available-for-sale (AFS) securities allows for some degree of earnings and capital management: an AFS asset is reported at Fair Value but gains and losses over historical cost go into net income and measures of regulatory capital only when the asset is sold and the gain or loss realized. We use comprehensive data from US commercial banks and bank holding companies and provide evidence that Fair Value gains in AFS assets have consistently been used for earnings and capital management and that the holdings of AFS assets are related to the intensity of this activity. Our results show that the earnings management behavior is present both in listed and non-listed banks, suggesting that the motivations go beyond the incentives provided by capital markets. We also uncover significant differences in earnings management behavior over the years of the financial crisis.

  • in defense of Fair Value weighing the evidence on earnings management and asset securitizations
    Journal of Accounting and Economics, 2010
    Co-Authors: Mary E. Barth, Daniel J Taylor
    Abstract:

    Dechow, Myers, and Shakespeare (DMS, 2009) find a negative relation between income from securitization activities and income from non-securitization activities. DMS interprets this finding as indicating that managers use the flexibility available in Fair Value Accounting rules to smooth earnings. We clarify the role of Fair Value in Accounting for asset securitizations, discuss alternative explanations for the evidence presented in DMS, and offer suggestions for future research. We caution against inferring the desirability of any particular Accounting method from earnings management research.

  • Fair Value Accounting for liabilities and own credit risk
    Social Science Research Network, 2008
    Co-Authors: Mary E. Barth, Leslie D Hodder, Stephen R Stubben
    Abstract:

    We find that equity returns associated with credit risk changes are attenuated by the debt Value effect of the credit risk changes, as Merton (1974) predicts. We find that the relation between credit risk changes and equity returns is significantly less negative for firms with more debt-controlling for asset Value changes, credit risk increases (decreases) are associated with equity Value increases (decreases). This result obtains across credit risk levels. The relation is associated with changes in both expected cash flows and systematic risk, as reflected in analyst earnings forecasts and equity cost of capital. By inverting the Merton (1974) model, we provide descriptive evidence that if unrecognized debt Value changes were recognized in income, but not unrecognized asset Value changes, most credit upgrade (downgrade) firms would recognize lower (higher) income. These potentially counterintuitive income effects primarily are attributable to incomplete recognition of contemporaneous asset Value changes. However, for a substantial majority of downgrade firms we find that recognized asset write-downs exceed unrecognized gains from debt Value decreases. This mitigates concerns that income effects from recognizing changes in debt Values would be anomalous for such firms.

Thorsten Sellhorn - One of the best experts on this subject based on the ideXlab platform.

  • mandatory Fair Value Accounting and information asymmetry evidence from the european real estate industry
    Management Science, 2011
    Co-Authors: Karl A Muller, Edward J Riedl, Thorsten Sellhorn
    Abstract:

    We examine the effects of mandating the provision of Fair Value information for long-lived tangible assets on firms' information asymmetry. Specifically, we investigate whether European real estate firms' compulsory adoption of International Accounting Standard 40 (IAS 40; Investment Property), which mandated the provision of investment property Fair Values in 2005, resulted in reduced information asymmetry across market participants. Using as a control group firms that voluntarily provided these Fair Values prior to the mandatory adoption of IAS 40, we find that mandatory adoption firms exhibit a larger decline in information asymmetry, as reflected in lower bid--ask spreads. However, we also find that mandatory adoption firms continue to have higher information asymmetry than voluntary adoption firms, which appears partially attributable to the lower reliability of Fair Values reported by the mandatory adoption firms. Together, this evidence adds to the debate on Fair Value Accounting by demonstrating that common adoption of Fair Value, even for long-lived tangible assets, under a mandatory reporting regime can reduce, but not necessarily eliminate, information asymmetry differences across firms. This paper was accepted by Stefan Reichelstein, Accounting.

  • mandatory Fair Value Accounting and information asymmetry evidence from the european real estate industry
    Social Science Research Network, 2011
    Co-Authors: Karl A Muller, Edward J Riedl, Thorsten Sellhorn
    Abstract:

    We examine the effects of mandating the provision of Fair Value information for long-lived tangible assets on firms’ information asymmetry. Specifically, we investigate whether European real estate firms’ compulsory adoption of International Accounting Standard 40 - Investment Property (IAS 40), which mandated the provision of investment property Fair Values in 2005, resulted in reduced information asymmetry across market participants. Using as a control group firms that voluntarily provided these Fair Values prior to the mandatory adoption of IAS 40, we find that mandatory adoption firms exhibit a larger decline in information asymmetry, as reflected in lower bid-ask spreads. However, we also find that mandatory adoption firms continue to have higher information asymmetry than voluntary adoption firms, which appears partially attributable to the lower reliability of Fair Values reported by the mandatory adoption firms. Together, this evidence adds to the debate on Fair Value Accounting by demonstrating that common adoption of Fair Value, even for long-lived tangible assets, under a mandatory reporting regime can reduce, but not necessarily eliminate, information asymmetry differences across firms.

Karl A Muller - One of the best experts on this subject based on the ideXlab platform.

  • mandatory Fair Value Accounting and information asymmetry evidence from the european real estate industry
    Management Science, 2011
    Co-Authors: Karl A Muller, Edward J Riedl, Thorsten Sellhorn
    Abstract:

    We examine the effects of mandating the provision of Fair Value information for long-lived tangible assets on firms' information asymmetry. Specifically, we investigate whether European real estate firms' compulsory adoption of International Accounting Standard 40 (IAS 40; Investment Property), which mandated the provision of investment property Fair Values in 2005, resulted in reduced information asymmetry across market participants. Using as a control group firms that voluntarily provided these Fair Values prior to the mandatory adoption of IAS 40, we find that mandatory adoption firms exhibit a larger decline in information asymmetry, as reflected in lower bid--ask spreads. However, we also find that mandatory adoption firms continue to have higher information asymmetry than voluntary adoption firms, which appears partially attributable to the lower reliability of Fair Values reported by the mandatory adoption firms. Together, this evidence adds to the debate on Fair Value Accounting by demonstrating that common adoption of Fair Value, even for long-lived tangible assets, under a mandatory reporting regime can reduce, but not necessarily eliminate, information asymmetry differences across firms. This paper was accepted by Stefan Reichelstein, Accounting.

  • mandatory Fair Value Accounting and information asymmetry evidence from the european real estate industry
    Social Science Research Network, 2011
    Co-Authors: Karl A Muller, Edward J Riedl, Thorsten Sellhorn
    Abstract:

    We examine the effects of mandating the provision of Fair Value information for long-lived tangible assets on firms’ information asymmetry. Specifically, we investigate whether European real estate firms’ compulsory adoption of International Accounting Standard 40 - Investment Property (IAS 40), which mandated the provision of investment property Fair Values in 2005, resulted in reduced information asymmetry across market participants. Using as a control group firms that voluntarily provided these Fair Values prior to the mandatory adoption of IAS 40, we find that mandatory adoption firms exhibit a larger decline in information asymmetry, as reflected in lower bid-ask spreads. However, we also find that mandatory adoption firms continue to have higher information asymmetry than voluntary adoption firms, which appears partially attributable to the lower reliability of Fair Values reported by the mandatory adoption firms. Together, this evidence adds to the debate on Fair Value Accounting by demonstrating that common adoption of Fair Value, even for long-lived tangible assets, under a mandatory reporting regime can reduce, but not necessarily eliminate, information asymmetry differences across firms.

Peter D Easton - One of the best experts on this subject based on the ideXlab platform.

  • a convenient scapegoat Fair Value Accounting by commercial banks during the financial crisis
    The Accounting Review, 2012
    Co-Authors: Brad A Badertscher, Jeffrey J Burks, Peter D Easton
    Abstract:

    ABSTRACT: Critics argue that Fair Value provisions in U.S. Accounting rules exacerbated the recent financial crisis by depleting banks' regulatory capital, which curtailed lending and triggered asset sales, leading to further economic turmoil. Defenders counter-argue that the Fair Value provisions were insufficient to lead to the pro-cyclical effects alleged by the critics. Our evidence indicates that these provisions did not affect the commercial banking industry in the ways commonly alleged by critics. First, we show that Fair Value Accounting losses had minimal effect on regulatory capital. Then, we examine sales of securities during the crisis, finding mixed evidence that banks sold securities in response to capital-depleting charges. However, the sales that potentially resulted from the charges appear to be economically insignificant, as there was no industry- or firm-level increase in sales of securities during the crisis. JEL Classifications: M41; M42; M44. Data Availability: Data are available fro...

  • a convenient scapegoat Fair Value Accounting by commercial banks during the financial crisis
    Social Science Research Network, 2010
    Co-Authors: Brad A Badertscher, Jeffrey J Burks, Peter D Easton
    Abstract:

    Critics argue that the “Fair Value” provisions in U.S. Accounting rules exacerbated the recent financial crisis by depleting banks’ regulatory capital, which curtailed lending and triggered asset sales, leading to further economic turmoil. Defenders counter-argue that the role of Fair Value in U.S. Accounting rules is insufficient to lead to the pro-cyclical effects alleged by the critics; they point out that most bank assets are not Fair Valued, and the assets that are Fair Valued likely have little effect on regulatory capital, especially when banks do not intend to sell the assets at low prices. Our empirical evidence indicates that Fair Value provisions in U.S. Accounting rules did not affect the commercial banking industry in the ways commonly alleged by critics. We show that Fair Value Accounting losses had minimal effect on regulatory capital, and there is no evidence of increased selling of securities during the crisis.