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How fair are fair values? A comparison for cross-listed financial companies

Listed author(s):
  • Marian Berden
  • Franka Liedorp

Fair value accounting and IAS 39 are at the core of a debate between regulators, institutions and supervisors. We add to this debate at a conceptual and empirical level. First we discuss the advantages and disadvantages of fair values for banks and insurance companies. Then we explore the differences between fair values and book values and the implications thereof based on a group of institutions with a listing on a stock exchange in both the home country (on book value) and the US (on fair value). We find that the initial impact of using fair values can be large and that reported income fluctuates more. However, we do not find an increase in volatility of institutions 'total assets or shareholders' equity, implying that the solvency ratio of institutions remains largely unaffected.

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Paper provided by Netherlands Central Bank, Research Department in its series DNB Occasional Studies with number 403.

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Date of creation: Apr 2006
Handle: RePEc:dnb:dnbocs:403
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