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"Taking Diversity into Account": Real Effects of Accounting Measurement on Asset Allocation

Gaëtan Le Quang

No 2018-28, EconomiX Working Papers from University of Paris Nanterre, EconomiX

Abstract: Following a request made by the G20, the IASB begins to work in 2009 on a new accounting standard meant to replace IAS 39: IFRS 9. Among other things, IFRS 9 puts forward a new way of classifying financial instruments that rests on a two-step procedure: a business model assessment and a contractual cash flow characteristics test. We develop a theoretical model that assesses the relevance of this procedure, specifically that of the business model assessment. We show that a mixed accounting regime where financial institutions whose time horizon is short resort to fair value accounting while those whose time horizon is longer resort to historical cost accounting provides a better asset allocation than a pure accounting regime where all FIs resort to the same accounting rule. In other words, business models are worth being taken into consideration when deciding whether an asset should be evaluated at its fair value or at its historical cost, which is in line with the framework presented in IFRS 9.

Keywords: IFRS 9; Fair Value Accounting, Historical Cost Accounting; Asset Allocation; Real Effects of Accounting; Banks; Insurers (search for similar items in EconPapers)
JEL-codes: G11 G21 G22 M41 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2018
New Economics Papers: this item is included in nep-acc
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Journal Article: “Taking Diversity Into Account”: Real effects of accounting measurement on asset allocation (2021) Downloads
Working Paper: “Taking diversity into account”: real effects of accounting measurement on asset allocation (2021)
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