Using Fair Value Earnings to Assess Firm Value

26 Pages Posted: 19 Jan 2018 Last revised: 27 Apr 2018

See all articles by Mary E. Barth

Mary E. Barth

Stanford University - Graduate School of Business

Wayne R. Landsman

University of North Carolina Kenan-Flagler Business School

Date Written: April 1, 2018

Abstract

Whether fair value accounting should be used in financial reporting has been the subject of debate for many years. A key dimension to this debate is whether fair value earnings can provide information to financial statement users that is helpful in making their economic decisions. A criticism of fair value accounting is the contention that fair value earnings simply reflects “shocks” to value, and thus cannot be used to assess firm value. We show how fair value earnings can be disaggregated into components that can be used to assess firm value, as well as components that provide information about various types to shocks to value, e.g., effects of changes in expected cash flows.

Keywords: Fair Value, Fair Value Earnings, Firm Value, IASB, FASB

JEL Classification: M41, G12

Suggested Citation

Barth, Mary E. and Landsman, Wayne R., Using Fair Value Earnings to Assess Firm Value (April 1, 2018). Stanford University Graduate School of Business Research Paper No. 18-7, Available at SSRN: https://ssrn.com/abstract=3103842 or http://dx.doi.org/10.2139/ssrn.3103842

Mary E. Barth

Stanford University - Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-9040 (Phone)
650-725-0468 (Fax)

Wayne R. Landsman (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-3221 (Phone)
919-962-4727 (Fax)

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