Does Fair Value Accounting Contribute to Market Price Volatility? An Experimental Approach

29 Pages Posted: 18 Dec 2014

See all articles by Carl Brousseau

Carl Brousseau

Université Laval - School of Accounting

Michel Gendron

Université Laval - Centre de Recherche en Économie et Finance Appliquée (CRÉFA)

Philippe Bélanger

Université Laval - Département de Finance et Assurance

Jonathan Coupland

Université Laval

Date Written: December 2014

Abstract

This paper contributes to the debate on the impact of accounting measurement rules for financial assets. We examine the association between fair value accounting for financial assets and market price volatility for nonfinancial firms in an experimental setting. One group of participants was provided with financial statements where held‐for‐trading securities were reported at fair market value (FVA). Another group received financial statements with investments reported at historical cost (HCA). Controlling for accounting data, we find no systematic difference between FVA and HCA for three different measures of market price volatility, despite higher earnings volatility and marginally heavier trading under FVA.

Keywords: Fair value accounting, Stock price volatility, Experimental markets

Suggested Citation

Brousseau, Carl and Gendron, Michel and Bélanger, Philippe and Coupland, Jonathan, Does Fair Value Accounting Contribute to Market Price Volatility? An Experimental Approach (December 2014). Accounting & Finance, Vol. 54, Issue 4, pp. 1033-1061, 2014, Available at SSRN: https://ssrn.com/abstract=2539884 or http://dx.doi.org/10.1111/acfi.12030

Carl Brousseau

Université Laval - School of Accounting ( email )

Quebec City
Canada

Michel Gendron

Université Laval - Centre de Recherche en Économie et Finance Appliquée (CRÉFA) ( email )

Pavillon Palasis-Prince
Quebec, QC
Canada

Philippe Bélanger

Université Laval - Département de Finance et Assurance ( email )

Pavillon Palasis-Prince
Quebec G1K 7P4
Canada

Jonathan Coupland

Université Laval ( email )

2214 Pavillon J-A. DeSeve
Quebec, Quebec G1K 7P4
Canada

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