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Fair value disclosures and crash risk

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  • Hsu, Audrey Wen-hsin
  • Pourjalali, Hamid
  • Song, Yi-Ju

Abstract

In response to the public criticism of the inadequate disclosures mandated by SFAS No. 157, Fair Value Measurements, the FASB issued ASU (Accounting Standards Update) 2010–06, Improving Disclosures about Fair Value Measurements, and ASU 2011–04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements, in an effort to increase the reporting transparency. We examine whether the increased fair value disclosures required by these two updates effectively decrease crash risk, defined as the frequency of extreme negative stock returns. In support of the hypothesis, we find that increased transparency from these updates reduces crash risk among U.S. banking firms and that the reduction is greater in banks that have a higher level of Level 3 financial assets.

Suggested Citation

  • Hsu, Audrey Wen-hsin & Pourjalali, Hamid & Song, Yi-Ju, 2018. "Fair value disclosures and crash risk," Journal of Contemporary Accounting and Economics, Elsevier, vol. 14(3), pages 358-372.
    • Handle: RePEc:eee:jocaae:v:14:y:2018:i:3:p:358-372
    DOI: 10.1016/j.jcae.2018.10.003
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    Cited by:

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    2. Md. Hamid Uddin & Md. Hakim Ali & Mohammad Kabir Hassan, 2020. "Cybersecurity hazards and financial system vulnerability: a synthesis of literature," Risk Management, Palgrave Macmillan, vol. 22(4), pages 239-309, December.
    3. Wu, Kai & Jin, Zejun & Xu, Maobin, 2022. "Thirst for money: External guarantees and stock price crash risk," Pacific-Basin Finance Journal, Elsevier, vol. 72(C).
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    5. Srinidhi, Bin & Liao, Qunfeng, 2020. "Family firms and crash risk: Alignment and entrenchment effects," Journal of Contemporary Accounting and Economics, Elsevier, vol. 16(2).
    6. Chiu, She-Chih & Lin, Hsuan-Chu & Chien, Chin-Chen & Liang, Chia-Chen, 2022. "Does Form 20-F reconciliation elimination for IFRS filers affect the risk forecasting ability of accounting numbers?," Journal of Contemporary Accounting and Economics, Elsevier, vol. 18(3).

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    More about this item

    Keywords

    Fair value hierarchy; SFAS No.157; Crash risk; ASU No. 2010–06; ASU No. 2011–04;
    All these keywords.

    JEL classification:

    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-

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