Market Value Accounting
Posted: 11 May 2000
This paper analyzes the effects of market value accounting (MVA) on loan maturity. The author shows that in the presence of asymmetric information MVA introduces a bias into asset valuation against longer-term illiquid assets. This bias increases interest rates for long-maturity loans and induces a shift to short-term self-liquidating loans. With the liquidity production of banks curtailed, borrowers may face "excessive" liquidation. The desirability of MVA applied to loans is thus questionable.
JEL Classification: G21, G28, M41
Suggested Citation: Suggested Citation