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.

Earnings Management and Stock Liquidity

2021 ◽  
pp. 66-84
Author(s):  
Hakan Özkaya
Keyword(s):  
Stock Market ◽  
Earnings Management ◽  
Trading Volume ◽  
Management Practices ◽  
Positive Association ◽  
Discretionary Accruals ◽  
Market Liquidity ◽  
Stock Liquidity ◽  
Turnover Ratio ◽  
Liquidity Measures

This chapter tests whether the earnings management practices in Turkey are considered informative or opportunistic by outside investors by examining its effect on stock liquidity. Earnings management is measured by discretionary accruals calculated by two different competing methods. Stock liquidity is also proxied by two different measures: the illiquidity measure of Amihud and the turnover ratio. Amihud's illiquidity measure indicates firms' daily price responses associated with the trading volume and the turnover ratio indicates how many times a stock changes its owner in a year. Relevant control variables are also included in the models. A positive association between earnings management and stock liquidity implies informative earnings management and vice versa. Earnings management is found to be positively associated with stock market liquidity. Results favor the informative earnings management view for Turkish firms and are robust to alternative specifications of earnings management and stock liquidity measures.

scholarly journals The relationship between the financial crisis and the measurement of fair value in financial statements

2014 ◽  
pp. 43-51
Author(s):  
Birutė Gudonytė ◽  
Kristina Rudžionienė
Keyword(s):  
Financial Crisis ◽  
Information Disclosure ◽  
Global Financial Crisis ◽  
Relevant Information ◽  
Fair Value ◽  
Financial Reports ◽  
Value Evaluation ◽  
True Value ◽  
The Global Financial Crisis ◽  
Value Measurement

Literature suggests that the main goal of fair value evaluation is more reliable and relevant information disclosure to external users. However, in 2007, at the beginning of the global financial crisis, the benefits of fair value, as well as the opportunity to provide information about the true and fair view of a company, were called into question. Opponents of the fair value claim that the fair value was the main reason for the global financial crisis, but the advocates disagree; therefore, the correlation between the fair value and crisis is controversial. It reflects the problem of the thesis: how the system of fair value accounting influenced the financial crisis? Object of the paper: the method of true value measurement. Aim of the paper: to evaluate the measurement of fair value and its potential impact on the financial crisis in Lithuania. After analysing the evaluation of 25 Lithuanian listed companies by disclosure of fair value, it can be state that stock companies evaluate more property than liabilities by disclose the fair value. A correlation coefficient was determined while assessing the correlation between the application of fair value in financial reports and financial crisis in Lithuania, but it disapproved the correlation.

THE CRISIS AND FAIR VALUES: ECHOES OF EARLY TWENTIETH CENTURY DEBATES?

2014 ◽  
Vol 41 (1) ◽  
pp. 35-60 ◽  
Author(s):  
Garen Markarian
Keyword(s):  
Twentieth Century ◽  
Financial Crisis ◽  
Conceptual Framework ◽  
Global Financial Crisis ◽  
Fair Value ◽  
Lessons Learned ◽  
Fair Value Measurement ◽  
Value Measurement ◽  
Secondary Characteristic

The recent global financial crisis has led to extensive criticism of the role of accounting and its use of fair value measurement in causing and spreading the crisis. This paper argues that the debate surrounding fair value vs. historic cost, and relevance versus reliability, is nothing new; it was at the center of early accounting discussions in the AAA (especially by A.C. Littleton and W.A. Paton), the AICPA (especially G.O. May), and the SEC. Although prominent accounting scholars and practitioners in postdepression 1929 focused on the use of historic cost, the paper discusses the decision of the IASB/FASB to move reliability to a secondary characteristic in its recent conceptual framework. This action ignores lessons learned from a century of research, teaching, and practice of accounting.

Do Investors Perceive Marking-to-Model as Marking-to-Myth? Early Evidence from FAS 157 Disclosure

2019 ◽  
Vol 09 (02) ◽  
pp. 1950005 ◽  
Author(s):  
Kalin S. Kolev
Keyword(s):  
Stock Price ◽  
Positive Association ◽  
Fair Value ◽  
Market Prices ◽  
Early Evidence ◽  
Level 3 ◽  
Fas 157 ◽  
Net Assets ◽  
Level 1 ◽  
Level 2

Capitalizing on the disclosure mandated by FAS 157, I examine the equity market’s perception of the reliability of internally generated fair value estimates. For the sample of S&P 1,500 financial institutions for the first three quarters of 2008, I document a significantly positive association between stock price and fair values measured using unadjusted market prices (FAS 157 Level 1), other observable inputs (Level 2), and significant unobservable inputs (Level 3), with valuation coefficients generally increasing in the observability of the measurement inputs. Using the reconciliation of the change in Level 3 net assets, I then directly examine the periodic re-measurement of the fair value estimates and document a significantly positive association between Level 3 net gains and quarterly returns. This result manifests even among observations with thin capital cushion, poorer information environment, and weaker corporate governance. Collectively, the findings are consistent with the conjecture that investors perceive the management-provided, mark-to-model, fair value estimates sufficiently reliable to use in firm valuation and do not discard them as “markings-to-myth.”

Unfair “Fair Value” in Illiquid Markets: Information Spillover Effects in Times of Crisis

2020 ◽  
Author(s):  
Alex Dontoh ◽  
Fayez A. Elayan ◽  
Joshua Ronen ◽  
Tavy Ronen
Keyword(s):  
Financial Crisis ◽  
Stock Returns ◽  
Information Transfer ◽  
Abnormal Returns ◽  
Credit Default Swap ◽  
Spillover Effects ◽  
Fair Value ◽  
Market Prices ◽  
Illiquid Markets ◽  
Information Spillover

We investigate the effects of write-downs on market prices and volumes under fair value accounting. We also examine the prominent role that illiquidity plays in exacerbating the direct and spillover effects of exit valuation on equity and credit default swap (CDS) markets. Using hand-collected data on write-down announcements made during and after the 2007–2009 financial crisis, we find that firms that wrote down assets in accordance with fair value rules experience significant abnormal negative stock returns and spikes in the CDS premiums written on their obligations; similar firms without write-downs exhibit sympathetic and significant negative abnormal returns and positive premiums. We find that both the direct effect of the write-downs and the indirect spillover effects resulting from crisis-related illiquidity in the markets for financial assets (affecting the magnitude of write-downs) and in the securities markets (affecting the reaction to the write-downs) during the financial crisis go beyond normal direct and information transfer effects and may have contributed to the adverse consequences of the crisis. This paper was accepted by Shiva Rajgopal, accounting.

scholarly journals Fair value accounting versus historical cost accounting: a theoretical framework for judgment in financial crisis

2013 ◽  
Vol 11 (1) ◽  
pp. 147-153 ◽  
Author(s):  
Massimo Costa ◽  
Giusy Guzzo
Keyword(s):  
Financial Crisis ◽  
Cost Accounting ◽  
Fair Value ◽  
Theoretical Framework ◽  
Mixed System ◽  
Accounting System ◽  
Fair Value Accounting ◽  
Historical Cost ◽  
Value Measurement ◽  
Historical Cost Accounting

Since the 2008 global economical and financial crisis, the fair value measurement has acquired a controversial position both within the accounting regulatory committees and the accounting theory. The literature generally examines two opposite central paradigms of evaluation, namely the Fair Value Accounting (FVA) and the Historical Cost Accounting (HCA). The paper, after a literature review through both these opposite sides, suggests a theoretical framework, using the basic concept of “accounting system”, for the choice between the opposite paradigms, considered noteworthy in times of crisis as it should allow to conceptualize a ‘mixed system’, combining FVA and HCA in different ways according to the different contexts and entities reported by the financial statements.

The Relevance of the Fair Value Measurement Hierarchy: A Holistic Perspective

2019 ◽  
Author(s):  
Andrei Filip ◽  
Ahmad Hammami ◽  
Zhongwei Huang ◽  
Anne Jeny ◽  
Michel Magnan ◽  
...  
Keyword(s):  
Fair Value ◽  
Holistic Perspective ◽  
Fair Value Measurement ◽  
Value Measurement
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