Fair Value‐Related Information in Analysts’ Decision Processes: Evidence from the Financial Crisis

38 Pages Posted: 11 Apr 2014

See all articles by Jannis Bischof

Jannis Bischof

University of Mannheim - Accounting and Taxation

Holger Daske

University of Mannheim - Accounting and Taxation

Christoph J. Sextroh

Tilburg University - Tilburg School of Economics and Management

Date Written: April/May 2014

Abstract

We use a sample of conference calls and analyst research reports from international banks to examine how financial analysts request and communicate fair value‐related information in their valuation process. We find that analysts devote considerable attention to fair value‐related topics. Most of the conference call questions and references in research reports pertain to fair value reclassifications and fair value changes of liabilities resulting from banks’ own credit risk. The accounting impact of these one‐time effects during the financial crisis and a lack of corresponding firm disclosures help to explain the prevalence of these two topics. The content of the questions and references suggests that analysts have different motives for their interest in fair value‐related information. While some analysts adjust reported earnings for unrecognised fair value changes of reclassified assets, most of the observed analysts exclude banks’ own credit risk effects from reported earnings. Thus, the use of fair value‐related information varies substantially across analysts and across instruments.

Keywords: fair value accounting, fair value reclassifications, own credit risk, bank disclosure, financial analysts, conference calls, analyst reports

Suggested Citation

Bischof, Jannis and Daske, Holger and Sextroh, Christoph J., Fair Value‐Related Information in Analysts’ Decision Processes: Evidence from the Financial Crisis (April/May 2014). Journal of Business Finance & Accounting, Vol. 41, Issue 3-4, pp. 363-400, 2014, Available at SSRN: https://ssrn.com/abstract=2423589 or http://dx.doi.org/10.1111/jbfa.12063

Jannis Bischof (Contact Author)

University of Mannheim - Accounting and Taxation ( email )

Mannheim, 68131
Germany

Holger Daske

University of Mannheim - Accounting and Taxation ( email )

Mannheim, 68131
Germany

Christoph J. Sextroh

Tilburg University - Tilburg School of Economics and Management ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

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