The Role of Accounting in the Financial Crisis: Lessons for the Future
Massachusetts Institute of Technology (MIT) - Sloan School of Management
Stanford Graduate School of Business
December 14, 2011
The advent of the Great Recession in 2008 was the culmination of a perfect storm of lax regulation, a growing housing bubble, rising popularity of derivatives instruments, and questionable banking practices. In addition to these causes, management incentives, as well as certain US accounting standards, contributed to the financial crisis. We outline the significant effects of these incentive structures, and the role of fair value accounting standards during the crisis, and discuss implications and relevance of these rules to practitioners, standard-setters, and academics.
Number of Pages in PDF File: 31
Keywords: financial crisis, securitization, fair value, incentives
JEL Classification: G10, G20, M41
Date posted: December 15, 2011
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