Are fair value options created equal? A study of SFAS 159 and earnings volatility

Robert Couch, Nicole Thibodeau and Wei Wu

Advances in accounting, 2017, vol. 38, issue C, 15-29

Abstract: The fair value option (FVO) embedded in both SFAS 159 and IAS 39 was introduced to allow firms to reduce earnings volatility induced from mixed-measurement accounting. Fiechter (2011) finds a reduction in earnings volatility among IAS 39 FVO adopters. In contrast, we find that earnings volatility increased among U.S. financial institutions following SFAS 159 FVO adoption in 2008. In further analysis, we find that this result is driven by firms reporting fair value assets without reporting fair value liabilities. Our study uses a two-stage Heckman regression to control for treatment effects, and our findings are robust to difference-in-differences regressions with control samples constructed by propensity score matching. These results have implications for current debates regarding fair value accounting, accounting choice, and earnings volatility of financial institutions.

Keywords: Earnings volatility; Financial institutions; Fair value option; Fair value accounting; Global accounting standards; Accounting choice; SFAS 159; IAS 39 (search for similar items in EconPapers)
JEL-codes: G21 G28 M41 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0882611015300286
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:advacc:v:38:y:2017:i:c:p:15-29

DOI: 10.1016/j.adiac.2017.05.001

Access Statistics for this article

Advances in accounting is currently edited by Dennis Caplan

More articles in Advances in accounting from Elsevier
Bibliographic data for series maintained by Catherine Liu ().