Fair Value Disclosures for Investment Securities and Bank Equity: Evidence from SFAS No. 115

Posted: 20 Nov 1999

See all articles by Myung S. Park

Myung S. Park

San Francisco State University

Taewoo Park

University of Maryland

Byung T. Ro

Purdue University - Krannert School of Management

Abstract

This paper examines whether the intent-based fair value disclosures by security type under SFAS No. 115 explain the value of bank equity. Focusing on available-for-sale (AFS) and held-to-maturity (HTM) securities, we find both AFS and HTM value differences (fair less book values) explain the value of bank equity. The AFS value differences also explain raw stock returns and abnormal returns, while the HTM value differences explain only the raw returns. The AFS value differences have greater explanatory power than those of the HTM. The explanatory power of the securities? value differences increases when they are considered as separate (AFS and HTM) variables rather than in aggregation. Also, the AFS value differences explain one-year-ahead bank earnings, while the HTM value differences do not. These results remain robust across the different model specifications examined. Overall, they are consistent with our hypotheses and with the view of SFAS No. 115 on the relevance and usefulness of the fair value disclosures to investors.

JEL Classification: M41, G12, M44

Suggested Citation

Park, Myung S. and Park, Taewoo and Ro, Byung T., Fair Value Disclosures for Investment Securities and Bank Equity: Evidence from SFAS No. 115. Available at SSRN: https://ssrn.com/abstract=186173

Myung S. Park

San Francisco State University ( email )

1600 Holloway Avenue
College of Business Department of Accounting
San Francisco, CA 94132

Taewoo Park (Contact Author)

University of Maryland ( email )

Robert H. Smith School of Business
College Park, MD 20742
United States
301-405-2217 (Phone)
301-314-9157 (Fax)

Byung T. Ro

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States
765-494-4512 (Phone)
765-494-9658 (Fax)

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