The Role of Accounting in the Financial Crisis: Lessons for the Future

31 Pages Posted: 15 Dec 2011  

S.P. Kothari

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Rebecca Lester

Stanford Graduate School of Business

Date Written: December 14, 2011

Abstract

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.

Keywords: financial crisis, securitization, fair value, incentives

JEL Classification: G10, G20, M41

Suggested Citation

Kothari, S.P. and Lester, Rebecca, The Role of Accounting in the Financial Crisis: Lessons for the Future (December 14, 2011). Available at SSRN: https://ssrn.com/abstract=1972354 or http://dx.doi.org/10.2139/ssrn.1972354

S.P. Kothari (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E52-325
Cambridge, MA 02142
United States
617-253-0994 (Phone)
617-253-0603 (Fax)

Rebecca Lester

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

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