Using Fair Value Earnings to Assess Firm Value

Mary E. Barth and Wayne R. Landsman
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Mary E. Barth: Stanford University
Wayne R. Landsman: University of North Carolina

Research Papers from Stanford University, Graduate School of Business

Abstract: Whether fair value accounting should be used in financial reporting has been the subject of debate for many years. A key dimension to this debate is whether fair value earnings can provide information to financial statement users that is helpful in making their economic decisions. A criticism of fair value accounting is the contention that fair value earnings simply reflects "shocks" to value, and thus cannot be used to assess firm value. We show how fair value earnings can be disaggregated into components that can be used to assess firm value, as well as components that provide information about various types of shocks to value, e.g., effects of changes in expected cash flows.

Date: 2018-01
New Economics Papers: this item is included in nep-acc
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