Fair Value Measurements and the Informational Role of Stock Prices

• In Event: Breakfast and Rountable
  In Roundtable: Table 5

Abstract

The purpose of this paper is to empirically examine the stock price implications of the U.S. fair value accounting rules in the banking industry. Specifically, the research questions examined are as follows:
1) Does the investment-to-price sensitivity of fair value reporting companies increase in the post-SFAS 157 period (fair value accounting) compared the pre-SFAS 157 period (historical cost accounting)?
2) Do level 3 items provide more positively correlated with investment sensitivity to stock price than levels 1 and 2 combined?
3) A) Is the association between level 3 (versus levels 1 and 2 combined) and the investment sensitivity to price stronger (weaker) in periods of high (lower) macroeconomic uncertainty?
B) Is the association between level 3 (versus levels 1 and 2 combined) and the investment sensitivity to price weaker (higher) in the presence of opportunistic (efficient) managerial discretion?

Author

• Mohamed A Elbannan, Minnesota State University Moorhead