An Analysis of Recent Events on the Perceived Reliability of Fair Value Measures in the Banking Industry

43 Pages Posted: 8 Apr 2008

See all articles by Mark J. Kohlbeck

Mark J. Kohlbeck

Florida Atlantic University - School of Accounting

Date Written: April 7, 2008

Abstract

I use market-based measures to investigate the perceived reliability of fair value amounts reported in bank financial statements. Fair values as a measurement basis in accounting are becoming more predominant. This growth increasingly requires fair value estimation. I develop a hypothesis based on two sets of recent events that may affect investors' perception of reliability of fair value estimates differently. I empirically investigate whether 1) the impact of accounting-based frauds, or 2) the application of SAS 101, Auditing Fair Value Measurements and Disclosures and passage of the Sarbanes-Oxley Act prevail in terms of investors' perception of reliability. While I find an over-time increase, I document a downward shift in market-based reliability of bank fair value measures in the period 2003 to 2005 compared to the period 1995 to 2001, consistent with recent accounting-based frauds dominating that of regulatory efforts. These results highlight the importance of external events on perceived reliability.

Keywords: Fair value, perceived reliability, SAS 101, SOX, accounting frauds

JEL Classification: M41, M43, M44, M49, G21, G38

Suggested Citation

Kohlbeck, Mark J., An Analysis of Recent Events on the Perceived Reliability of Fair Value Measures in the Banking Industry (April 7, 2008). Available at SSRN: https://ssrn.com/abstract=1117728 or http://dx.doi.org/10.2139/ssrn.1117728

Mark J. Kohlbeck (Contact Author)

Florida Atlantic University - School of Accounting ( email )

777 Glades Avenue
KH 119
Boca Raton, FL 33431-0991
United States
561-297-1363 (Phone)

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