Does it matter who serves on the Financial Accounting Standards Board? Bob Herz’s resignation and fair value accounting for loans

John Jiang (), Isabel Yanyan Wang () and Yuan Xie ()
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John Jiang: Michigan State University
Isabel Yanyan Wang: Michigan State University
Yuan Xie: Fordham University

Review of Accounting Studies, 2015, vol. 20, issue 1, No 12, 394 pages

Abstract: Abstract On August 24, 2010, Bob Herz, then chairman of the Financial Accounting Standards Board (FASB) resigned unexpectedly. Before his resignation, Herz supported a FASB proposal for applying fair value to loans and cast the deciding vote. This proposal received strong pushbacks from banks and bank regulators. Using an event study methodology, we examine whether Herz’s abrupt resignation changed the market’s expectation on whether the fair value proposal would be finalized. We find that bank investors responded positively to Herz’s resignation, especially banks that would have been affected more by the fair value requirement for loans. They also responded negatively to the initial proposal and positively to the later reversal of the proposal after Herz’s departure. Our results indicate that bank investors believed that Herz’s position on the fair value proposal is crucial to the final outcome of the proposal.

Keywords: Financial Accounting Standards Board; Event study; Individual effect; Fair value accounting (search for similar items in EconPapers)
JEL-codes: D70 D78 G18 G28 M41 M48 (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1007/s11142-014-9301-z

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