In Defense of Fair Value: Weighing the Evidence on Earnings Management and Asset Securitizations

24 Pages Posted: 25 Sep 2009

See all articles by Mary E. Barth

Mary E. Barth

Stanford University - Graduate School of Business

Daniel J. Taylor

Wharton School, University of Pennsylvania

Date Written: September 25, 2009

Abstract

Dechow, Myers, and Shakespeare (2009, DMS) finds a negative relation between income from securitization activities and income from non-securitization activities. DMS interprets this finding as indicating that managers use the flexibility available in fair value accounting rules to smooth earnings. We clarify the role of fair value in accounting for asset securitizations, discuss alternative explanations for the evidence presented in DMS, and offer suggestions for future research. We caution against inferring the desirability of any particular accounting method from earnings management research.

Keywords: asset securitizations, securitization income, earnings management, fair value

JEL Classification: M43, M41

Suggested Citation

Barth, Mary E. and Taylor, Daniel, In Defense of Fair Value: Weighing the Evidence on Earnings Management and Asset Securitizations (September 25, 2009). Journal of Accounting & Economics (JAE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1478670

Mary E. Barth (Contact Author)

Stanford University - Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-9040 (Phone)
650-725-0468 (Fax)

Daniel Taylor

Wharton School, University of Pennsylvania ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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