The effects of SFAS 157 disclosures on investment decisions

Iselin, Michael; Nicoletti, Allison

doi:10.1016/j.jacceco.2016.09.004

Cited by 37 publications

(10 citation statements)

References 26 publications

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“…Magnan et al (2015) report that Level 3 fair values increase forecast dispersion, while Riedl and Serafeim (2011) find that firms with greater exposure to Level 3 assets have higher equity betas. In line with these results, Iselin and Nicoletti (2017) find that banks change the asset composition of their portfolios to avoid disclosing Level 3 assets. While the above studies suggest that fair values based on inputs corresponding to higher levels in the fair value hierarchy are more useful, this is not always the case.…”

Section: Related Literaturesupporting

confidence: 73%

“…To control for potential time-varying unobservable characteristics, we use the two-stage Heckman (1979) correction procedure. In the first stage, we use a probit model to explain the use of fair value Level 3 reporting (Altamuro and Zhang 2013;Iselin and Nicoletti 2017) and find that Level 3 reporting is associated with bank size, use of a Big Four auditor, use of FVO for assets, and the importance of liabilities under FVO. In the second stage, we add the self-selection parameter calculated from the probit model to our main regression models.…”

Section: Further Sensitivity Analysesmentioning

confidence: 99%

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What can we learn about credit risk from debt valuation adjustments?

et al. 2022

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Motivated by the debate about the introduction of the fair value option for (financial) liabilities (FVOL) and the requirement to recognize and separately disclose in financial statements debt valuation adjustments (DVAs), this study explores what we can learn about a firm’s credit risk from DVAs. Using a sample of US bank holding companies that elect the FVOL, we show that DVAs generally cannot be explained by the same factors that explain contemporaneous changes in bank’s credit quality. We further find that DVAs can explain future changes in credit risk when the fair value of liabilities is based on managerial inputs (Level 3). Overall our results suggest that managers have an information advantage in estimating credit risk and that DVAs provide inside information to the market.

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Section: Related Literaturesupporting

confidence: 73%

Section: Further Sensitivity Analysesmentioning

confidence: 99%

What can we learn about credit risk from debt valuation adjustments?

et al. 2022

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“…Financial institutions are aware of these potentially disruptive effects on their balance sheets and adjust their portfolios accordingly (Bank of Italy, 2020). Iselin and Nicoletti (2017) show that fair value accounting drives asset allocation of financial institutions even if there is no implication for capital requirements.…”

Section: Fair Value Accounting and Long-term Investors' Asset Allocationmentioning

confidence: 99%

Accounting for sustainable finance: does fair value measurement fit for long-term equity investments?

Palea

2021

MEDAR

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Purpose The purpose of this paper is to discuss whether fair value accounting fits for long-term equity investments, which are considered key to retool economies according to sustainability criteria. In doing so, the paper focuses on the European Union and addresses the European Commission’s (2018a) concern that current accounting rules are unfit for achieving the United Nations Sustainable Development goals and the targets of the Paris Agreement on climate change. Design/methodology/approach The paper grounds in a wide literature review on the effects of fair value accounting on investors’ asset allocation strategies. By critically integrating literature on the notion of long-term investment with theories and possible accounting approaches, the paper provides implications for a revision of the current measurement system for long-term equity investments. Findings The literature review supports the view that fair value accounting has played a role in discouraging equity investments over time, thus leaving economies with poorer risk-sharing and weaker long-term investments. The paper contributes to the debate on alternative measurement systems by suggesting possible solutions in relation to controversies arising from empirical evidence. Originality/value Reorienting economies according to sustainability criteria represents an urgent issue which requires prompt and policy-oriented responses. Accordingly, this paper offers insights and guidelines that can help policymakers revise current accounting rules for long-term equity investments in line with sustainable development objectives.

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“…Further, the UK contributes approximately 29% of the observations and the three largest 22 We would like to thank an anonymous referee for suggesting this approach. In a previous version, we matched the firms based on propensity scores in both time periods (pre-and post-MiFID implementation) following the approach used in Bliss et al (2018), Iselin and Nicoletti (2017) and Kyung et al (2019). The results were qualitatively the same and available from the first author.…”

Section: Descriptive Statisticsmentioning

confidence: 99%