The fair value option for liabilities and stock returns during the financial crisis

Robert Couch and Wei Wu

The Quarterly Review of Economics and Finance, 2016, vol. 59, issue C, 83-98

Abstract: We analyze the stock returns following the adoption of fair value option for liabilities (FVOL) embedded in the SFAS 159 by financial institutions during the financial crisis. We find that FVOL adopters exhibit ex post negative abnormal returns. Moreover, we find that financially vulnerable firms are more likely to adopt the FVOL and that adopters are more likely to receive TARP bailout funds. These results suggest that FVOL adoption reveals information not priced by markets at the time of adoption, and that regulators and investors ought to better utilize private information revealed through financial reporting options.

Keywords: Stock returns; Financial institutions; Financial crisis; Adverse selection; Credit risk; Fair value option; SFAS 159 (search for similar items in EconPapers)
JEL-codes: G14 G30 G32 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:59:y:2016:i:c:p:83-98

DOI: 10.1016/j.qref.2015.06.002

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