Strategic Estimation of Asset Fair Values

53 Pages Posted: 23 Dec 2016 Last revised: 17 Jan 2018

See all articles by Kathleen Weiss Hanley

Kathleen Weiss Hanley

Lehigh University - College of Business

Alan D. Jagolinzer

University of Cambridge Judge Business School

Stanislava (Stas) Nikolova

University of Nebraska - Lincoln

Date Written: January 17, 2018

Abstract

We examine whether fair value (FV) input levels and estimation sources are related to FV inflation, the difference between an insurer’s FV estimate and the consensus FV estimate across the security’s holders. FV inflation is higher and self-estimation more likely, when insurers report using Level 3 inputs when the consensus level is 2. Regardless of the level, FV is greater when self-estimated. Public insurers who inflate FV through self-estimation, potentially obfuscate detection by reporting the use of Level 2 inputs. Insurers with stronger incentives to appear financially healthy choose to self-estimate, resulting in greater aggregate portfolio FV inflation.

Keywords: Fair value, Level 1, Level 2, Level 3, SFAS 157, insurance companies, regulatory capital, asset values, estimation bias

JEL Classification: G21, G22, G31, M41

Suggested Citation

Hanley, Kathleen Weiss and Jagolinzer, Alan D. and Nikolova, Stanislava (Stas), Strategic Estimation of Asset Fair Values (January 17, 2018). Journal of Accounting & Economics (JAE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2889160 or http://dx.doi.org/10.2139/ssrn.2889160

Kathleen Weiss Hanley

Lehigh University - College of Business ( email )

Bethlehem, PA 18015
United States

Alan D. Jagolinzer

University of Cambridge Judge Business School ( email )

Trumpington Street
University of Cambridge
Cambridge, CB2 1AG
United Kingdom

Stanislava (Stas) Nikolova (Contact Author)

University of Nebraska - Lincoln ( email )

Lincoln, NE 68588-0490
United States
402-472-6049 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
329
Abstract Views
1,614
rank
91,210
PlumX Metrics