Moving Towards Consensus: An Examination of Trends in Investment Fair Values

59 Pages Posted: 27 Feb 2023 Last revised: 1 Apr 2025

See all articles by Chris E. Hogan

Chris E. Hogan

Michigan State University - Department of Accounting & Information Systems; Michigan State University

Sarah E. Stein

Virginia Tech

Sarah B. Stuber

Texas A&M University - Mays Business School

Date Written: April 01, 2025

Abstract

A primary argument against fair value measurement is the lack of verifiability, where verifiability is defined as consensus in measurement by independent parties. In this study, we evaluate this argument by investigating trends in the consensus of reported fair values. Using a rich dataset that provides fair values of identical securities across all holders, we find that consensus has increased between 2005 and 2019 as evidenced by reductions in the fair value range and standard deviation. Further analyses indicate that enhanced data availability through public dissemination of trade information is a potential mechanism for why this trend exists. Additionally, we document that securities subject to testing by larger external auditors with more resources to take advantage of enhanced data availability are associated with a stronger trend in increasing consensus. Our results further show that trends toward greater consensus are stronger when management has a heightened opportunity to record a biased estimate, and also exist when examined at the insurer-security level using the difference from the mode reported value. While conventional arguments express concern over management’s ability to manipulate fair values, our results demonstrate patterns consistent with improved verifiability.

Keywords: fair value, investment security, verifiability, trends, insurance companies JEL classifications: G22

JEL Classification: G22, G31, M41

Suggested Citation

Hogan, Chris E. and Hogan, Chris E. and Stein, Sarah E. and Stuber, Sarah, Moving Towards Consensus: An Examination of Trends in Investment Fair Values (April 01, 2025). Available at SSRN: https://ssrn.com/abstract=4365771 or http://dx.doi.org/10.2139/ssrn.4365771

Chris E. Hogan

Michigan State University - Department of Accounting & Information Systems ( email )

270 North Business Complex
East Lansing, MI 48824-1034
United States

Michigan State University ( email )

N270 Business College Complex
Department of Accounting and Information System
East Lansing, MI 48824-1121
United States

Sarah E. Stein (Contact Author)

Virginia Tech ( email )

250 Drillfield Drive
Blacksburg, VA 24061
United States

Sarah Stuber

Texas A&M University - Mays Business School ( email )

Wehner 401Q, MS 4353
College Station, TX 77843-4218
United States

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