Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/43199
Authors: 
Laux, Christian
Leuz, Christian
Year of Publication: 
2009
Series/Report no.: 
CFS Working Paper 2009/22
Abstract: 
The recent financial crisis has led to a major debate about fair-value accounting. Many critics have argued that fair-value accounting, often also called mark-to-market accounting, has significantly contributed to the financial crisis or, at least, exacerbated its severity. In this paper, we assess these arguments and examine the role of fair-value accounting in the financial crisis using descriptive data and empirical evidence. Based on our analysis, it is unlikely that fair-value accounting added to the severity of the current financial crisis in a major way. While there may have been downward spirals or asset-fire sales in certain markets, we find little evidence that these effects are the result of fair-value accounting. We also find little support for claims that fair-value accounting leads to excessive write-downs of banks' assets. If anything, empirical evidence to date points in the opposite direction, that is, towards overvaluation of bank assets.
Subjects: 
Mark-to-Market Accounting
Financial Institutions
Liquidity
Financial Crisis, Banks
Financial Regulation
Procyclicality
Contagion
JEL: 
G14
G15
G30
K22
M41
M42
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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