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http://ssrn.com/abstract=1275395
 
 

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Fair Value Accounting and Financial Stability


Guillaume Plantin


University of Toulouse 1 - Toulouse School of Economics (TSE)

Haresh Sapra


University of Chicago - Booth School of Business

Hyun Song Shin


Bank for International Settlements; Princeton University - Department of Economics

July 1, 2008

Chicago GSB Research Paper No. 08-15

Abstract:     
Accounting is sometimes seen just as a veil leaving the economic fundamentals unaffected. Indeed, in the context of completely frictionless markets, where assets trade in fully liquid markets and there are no problems of perverse incentives, accounting would be irrelevant since reliable market prices would be readily available to all. Just as accounting is irrelevant in such a world, so would any talk of establishing and enforcing accounting standards. To state the proposition the other way round, accounting is relevant only because we live in an imperfect world, where markets are not always fully liquid and incentives may be distorted. In such an imperfect world, transaction prices may not be readily available. Even those prices that are available may not correspond to the hypothetical market prices that would prevail in frictionless perfect markets. Therefore, when we debate issues regarding accounting, it is important to be clear on the nature and consequences of the imperfections.

Number of Pages in PDF File: 14

JEL Classification: M41, M44, G14

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Date posted: September 30, 2008  

Suggested Citation

Plantin, Guillaume and Sapra, Haresh and Shin, Hyun Song, Fair Value Accounting and Financial Stability (July 1, 2008). Chicago GSB Research Paper No. 08-15. Available at SSRN: http://ssrn.com/abstract=1275395 or http://dx.doi.org/10.2139/ssrn.1275395

Contact Information

Guillaume Plantin
University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )
Place Anatole-France
Toulouse Cedex, F-31042
France
Haresh Sapra (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
Hyun Song Shin
Bank for International Settlements ( email )
Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland
HOME PAGE: http://www.bis.org/author/hyun_song_shin.htm
Princeton University - Department of Economics ( email )
Princeton, NJ 08544-1021
United States

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