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The fair value option for liabilities and stock returns during the financial crisis

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  • Couch, Robert
  • Wu, Wei

Abstract

We analyze the stock returns following the adoption of fair value option for liabilities (FVOL) embedded in the SFAS 159 by financial institutions during the financial crisis. We find that FVOL adopters exhibit ex post negative abnormal returns. Moreover, we find that financially vulnerable firms are more likely to adopt the FVOL and that adopters are more likely to receive TARP bailout funds. These results suggest that FVOL adoption reveals information not priced by markets at the time of adoption, and that regulators and investors ought to better utilize private information revealed through financial reporting options.

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  • Couch, Robert & Wu, Wei, 2016. "The fair value option for liabilities and stock returns during the financial crisis," The Quarterly Review of Economics and Finance, Elsevier, vol. 59(C), pages 83-98.
    • Handle: RePEc:eee:quaeco:v:59:y:2016:i:c:p:83-98
    DOI: 10.1016/j.qref.2015.06.002
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    Cited by:

    1. Couch, Robert & Thibodeau, Nicole & Wu, Wei, 2017. "Are fair value options created equal? A study of SFAS 159 and earnings volatility," Advances in accounting, Elsevier, vol. 38(C), pages 15-29.

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    More about this item

    Keywords

    Stock returns; Financial institutions; Financial crisis; Adverse selection; Credit risk; Fair value option; SFAS 159;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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