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Does fair value accounting contribute to market price volatility? An experimental approach

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  • Carl Brousseau
  • Michel Gendron
  • Philippe Bélanger
  • Jonathan Coupland
  • Gary Monroe

Abstract

type="main" xml:id="acfi12030-abs-0001"> This paper contributes to the debate on the impact of accounting measurement rules for financial assets. We examine the association between fair value accounting for financial assets and market price volatility for nonfinancial firms in an experimental setting. One group of participants was provided with financial statements where held-for-trading securities were reported at fair market value (FVA). Another group received financial statements with investments reported at historical cost (HCA). Controlling for accounting data, we find no systematic difference between FVA and HCA for three different measures of market price volatility, despite higher earnings volatility and marginally heavier trading under FVA.

Suggested Citation

  • Carl Brousseau & Michel Gendron & Philippe Bélanger & Jonathan Coupland & Gary Monroe, 2014. "Does fair value accounting contribute to market price volatility? An experimental approach," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 54(4), pages 1033-1061, December.
    • Handle: RePEc:bla:acctfi:v:54:y:2014:i:4:p:1033-1061
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    File URL: http://hdl.handle.net/10.1111/acfi.2014.54.issue-4
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    Cited by:

    1. Mak, Kevin & McCurdy, Thomas H., 2019. "Simulation-based learning using the RIT market simulator and RIT decision cases," Journal of Behavioral and Experimental Finance, Elsevier, vol. 23(C), pages 12-22.
    2. Warren Maroun & Wayne van Zijl & Rottok Chesaina & Robert Garnett, 2022. "The Beautiful Game: Fair Value, Accountability and Accounting for Player Registrations," Australian Accounting Review, CPA Australia, vol. 32(3), pages 334-351, September.
    3. Alessandro Leardi, 2022. "Fuelling fire sales? Prudential regulation and crises: evidence from the Italian market," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 46(1), pages 121-144, January.
    4. Lin Liao & Helen Kang & Richard D. Morris, 2021. "The value relevance of fair value and historical cost measurements during the financial crisis," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(S1), pages 2069-2107, April.

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