Fair Value Accounting and Value Relevance of Equity Book Value and Net Income for European Financial Firms During the Crisis

Journal of International Accounting, Auditing and Taxation. 2020 DOI:ACCAUD_100320

33 Pages Posted: 27 May 2020

See all articles by Sami Adwan

Sami Adwan

University of Sussex

Alaa Alhaj Ismail

Coventry University

Claudia Girardone

Essex Business School - University of Essex

Date Written: May 14, 2020

Abstract

This paper examines whether and how the level of exposure to fair value accounting moderates the changes in the value relevance of equity book value and net income during a crisis period. Using a sample of European listed financial firms over 2005-2011, our analysis confirms prior literature that the value relevance of book value of equity increases, while that of net income decreases during the financial crisis. More importantly, our findings offer robust support for the hypothesis that the impact of the crisis is less pronounced for firms whose financial statements are more exposed to fair value accounting. This evidence can be explained by the increased valuation weight placed by investors on the book value of equity relative to net income for firms with more exposure to fair value in the pre-crisis period.

Keywords: Value Relevance; Fair Value; Financial Crisis; Financial Firms

JEL Classification: M41

Suggested Citation

Adwan, Sami and Alhaj Ismail, Alaa and Girardone, Claudia, Fair Value Accounting and Value Relevance of Equity Book Value and Net Income for European Financial Firms During the Crisis (May 14, 2020). Journal of International Accounting, Auditing and Taxation. 2020 DOI:ACCAUD_100320, Available at SSRN: https://ssrn.com/abstract=3601703

Sami Adwan (Contact Author)

University of Sussex ( email )

Sussex House
Falmer
Brighton, Sussex BNI 9RH
United Kingdom

Alaa Alhaj Ismail

Coventry University ( email )

Priory Street
Coventry, CV1 5FB
United Kingdom

Claudia Girardone

Essex Business School - University of Essex ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom
+44 1206874156 (Phone)
+44 1206873429 (Fax)

HOME PAGE: http://www.essex.ac.uk/ebs/staff/profile.aspx?ID=1045

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