Fair Value Measurement Discretion and Opportunistic Avoidance of Impairment Loss Recognition

55 Pages Posted: 23 Jul 2019 Last revised: 17 Mar 2022

See all articles by Leslie D. Hodder

Leslie D. Hodder

Indiana University - Kelley School of Business - Department of Accounting

Amy Sheneman

Ohio State University (OSU) - Department of Accounting & Management Information Systems

Date Written: July 22, 2019

Abstract

Studies find evidence that opportunistic reporting often accompanies fair value measurement. However, research has not determined whether the source of this opportunism is the estimate of fair value. Using detailed information on insurers’ investment holdings, we separate the use of fair value measurement discretion from the application of non-measurement-related discretion in accounting for impairments of financial assets. Our evidence contradicts the view that fair value measurement discretion plays a large role in opportunistic avoidance of impairment recognition for investment securities. Instead, managers appear to avoid recording impairment losses by opportunistically applying subjective criteria regarding perceived loss persistence and intent to hold.

Keywords: fair value, earnings management, insurance companies, asset values

JEL Classification: G20, G22, G30, M41

Suggested Citation

Davis Hodder, Leslie D. and Sheneman, Amy, Fair Value Measurement Discretion and Opportunistic Avoidance of Impairment Loss Recognition (July 22, 2019). Available at SSRN: https://ssrn.com/abstract=3424305 or http://dx.doi.org/10.2139/ssrn.3424305

Leslie D. Davis Hodder (Contact Author)

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

Amy Sheneman

Ohio State University (OSU) - Department of Accounting & Management Information Systems ( email )

2100 Neil Avenue
Columbus, OH 43210
United States

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