The decision relevance of loan fair values for depositors

64 Pages Posted: 1 Apr 2022 Last revised: 28 Nov 2022

See all articles by Qi Chen

Qi Chen

Duke University - Fuqua School of Business

Rahul Vashishtha

Duke University

Shuyan Wang

Duke University - Fuqua School of Business

Date Written: February 16, 2022

Abstract

Using a large sample of U.S. commercial banks from 1994-2019, we find that loan fair value changes are highly relevant for depositor decision-making: a one-standard-deviation decrease in fair values is associated with 10% lower uninsured deposit flows than the sample average. However, the information in fair values about loan quality is limited and does not fully explain the relevance of fair values for depositors. Furthermore, the relevance manifests more strongly in banks where depositors’ incentives to withdraw money before other depositors (i.e., strategic complementarities) are stronger. The findings inform the cost-benefit trade-off of reporting loan fair values.

Keywords: Fair Value, Banks, Loans, Deposits, Strategic Complementarity.

JEL Classification: M40, G21, G32, D82

Suggested Citation

Chen, Qi and Vashishtha, Rahul and Wang, Shuyan, The decision relevance of loan fair values for depositors (February 16, 2022). Available at SSRN: https://ssrn.com/abstract=4036953 or http://dx.doi.org/10.2139/ssrn.4036953

Qi Chen

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
(919) 660-7753 (Phone)

Rahul Vashishtha (Contact Author)

Duke University ( email )

Durham, NC 27708-0204
United States
919-660-7755 (Phone)
91-660-7971 (Fax)

Shuyan Wang

Duke University - Fuqua School of Business

100 Fuqua Drive
Durham, NC 27708
United States

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