Abstract

http://ssrn.com/abstract=1873473
 
 

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The Market Pricing of Other-Than-Temporary Impairments


Brad Badertscher


University of Notre Dame

Jeffrey J. Burks


University of Notre Dame

Peter D. Easton


University of Notre Dame - Department of Accountancy

October 15, 2013

The Accounting Review 2014, Volume 89, No. 3

Abstract:     
When the fair value of an investment security falls below amortized cost and there is significant doubt that the firm can hold the security until the fair value recovers, an other-than-temporary impairment (OTTI) is recognized in net income. Thus, an OTTI is a disclosure about the prospect of recovering an unrealized loss. Our findings suggest that investors priced banks’ OTTI recognition during and after the financial crisis. Investors were unable to fully anticipate reported OTTIs, and priced OTTIs incrementally to reported unrealized gains/losses. After banks were required to bifurcate OTTIs, investors priced only the portion of OTTI recognized in earnings. Our results suggest that reporting unrealized losses in earnings via an OTTI changes how investors price the losses. The results inform recent standard-setting initiatives to expand disclosure about changes in fair value.

Keywords: fair value accounting, mark-to-market accounting, other-than-temporary impairments, unrealized losses, other comprehensive income, financial crisis, commercial banks

JEL Classification: M41, M42, M44

Accepted Paper Series


Not Available For Download

Date posted: June 28, 2011 ; Last revised: July 17, 2014

Suggested Citation

Badertscher, Brad and Burks, Jeffrey J. and Easton, Peter D., The Market Pricing of Other-Than-Temporary Impairments (October 15, 2013). The Accounting Review 2014, Volume 89, No. 3. Available at SSRN: http://ssrn.com/abstract=1873473 or http://dx.doi.org/10.2139/ssrn.1873473

Contact Information

Brad Badertscher
University of Notre Dame ( email )
Mendoza College of Business
Notre Dame, IN 46556-5646
United States
Jeffrey J. Burks (Contact Author)
University of Notre Dame ( email )
Mendoza College of Business
Notre Dame, IN 46556-5646
United States
Peter D. Easton
University of Notre Dame - Department of Accountancy ( email )
Mendoza College of Business
Notre Dame, IN 46556-5646
United States
574-631-6096 (Phone)
574-631-5127 (Fax)
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