Marking‐to‐Market: Panacea or Pandora's Box?
Guillaume Plantin,
Haresh Sapra and
Hyun Song Shin
Journal of Accounting Research, 2008, vol. 46, issue 2, 435-460
Abstract:
Financial institutions have been at the forefront of the debate on the controversial shift in international standards from historical cost accounting to mark‐to‐market accounting. We show that the trade‐offs at stake in this debate are far from one‐sided. While the historical cost regime leads to some inefficiencies, marking‐to‐market may lead to other types of inefficiencies by injecting artificial risk that degrades the information value of prices, and induces suboptimal real decisions. We construct a framework that can weigh the pros and cons. We find that the damage done by marking‐to‐market is greatest when claims are (1) long–lived, (2) illiquid, and (3) senior. These are precisely the attributes of the key balance sheet items of banks and insurance companies. Our results therefore shed light on why banks and insurance companies have been the most vocal opponents of the shift to marking‐to‐market.
Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (198)
Downloads: (external link)
https://doi.org/10.1111/j.1475-679X.2008.00281.x
Related works:
Working Paper: Marking-to-Market: Panacea or Pandora's Box? (2008)
Working Paper: Marking to Market: Panacea or Pandora’s Box ? 
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:bla:joares:v:46:y:2008:i:2:p:435-460
Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0021-8456
Access Statistics for this article
Journal of Accounting Research is currently edited by Philip G. Berger, Luzi Hail, Christian Leuz, Haresh Sapra, Douglas J. Skinner, Rodrigo Verdi and Regina Wittenberg Moerman
More articles in Journal of Accounting Research from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().