An Investigation of Capital Market Reactions to Pronouncements on Fair Value Accounting

Posted: 29 May 1995

See all articles by Marcia Millon Cornett

Marcia Millon Cornett

Bentley University - Department of Finance

Zabihollah Rezaee

University of Memphis - School of Accountancy

Hassan Tehranian

Boston College - Department of Finance

Abstract

This paper examines the impact of twenty-three pronouncements related to the proposed fair value accounting (FVA) rules on equity prices of financial institutions. The results document that announcements which signaled an increased (decreased) probability of enactment of FVA produced negative (positive) abnormal stock price reactions for the sample banks. Further the magnitude of the stock price reactions are negatively related to the banks' primary capital ratio and positively related to the ratio of the book or market value of the investment portfolio to total assets and the ratio of the difference between the market and book value of the investment portfolio of total assets.

JEL Classification: M41

Suggested Citation

Cornett, Marcia Millon and Rezaee, Zabihollah and Tehranian, Hassan, An Investigation of Capital Market Reactions to Pronouncements on Fair Value Accounting. Available at SSRN: https://ssrn.com/abstract=55481

Marcia Millon Cornett

Bentley University - Department of Finance ( email )

175 Forest Street
Waltham, MA 02154
United States

Zabihollah Rezaee

University of Memphis - School of Accountancy ( email )

Fogelman College of Business and Economics
Memphis, TN 38152-6460
United States
901-678-4652 (Phone)

Hassan Tehranian (Contact Author)

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States
617-552-3944 (Phone)
617-552-0431 (Fax)

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