Fair Value Accounting and Financial Stability

14 Pages Posted: 30 Sep 2008  

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

Date Written: July 1, 2008

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.

JEL Classification: M41, M44, G14

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: https://ssrn.com/abstract=1275395 or http://dx.doi.org/10.2139/ssrn.1275395

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

Paper statistics

Downloads
3,823
Rank
1,672
Abstract Views
11,918