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Does fair value accounting provide a better representation of a company?

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  • Jean-François Casta

Abstract

[eng] This article looks at the usefulness of measuring a company's wealth and net income using the fair value method. In this regard, the key question - is fair value relevant ? - can be analysed as follows : do fair value « accounting numbers » provide a better estimate of the value of a company and the risk relating to its activity ? How informative are they for users ? How useful is fair value information for decision-making ? In order to answer these questions, the author examines first the basis and limitations of the traditional accounting model. He analyses then the determining factors in the emergence of the fair value method, with particular regard to the role attributed to financial statements and the needs of their users. Lastly, he presents a summary of the empirical studies carried out to assess the usefulness of fair value accounting information. . JEL classifications : G14, M41

Suggested Citation

  • Jean-François Casta, 2003. "Does fair value accounting provide a better representation of a company?," Revue d'Économie Financière, Programme National Persée, vol. 71(2), pages 11-24.
    • Handle: RePEc:prs:recofi:ecofi_1767-4603_2003_num_71_2_4742
    DOI: 10.3406/ecofi.2003.4742
    Note: DOI:10.3406/ecofi.2003.4742
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    References listed on IDEAS

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    1. repec:dau:papers:123456789/1858 is not listed on IDEAS
    2. Jean-François Casta, 2009. "Incertitude et comptabilité," Post-Print halshs-00679551, HAL.
    3. Jean-François Casta & Bernard Colasse, 2001. "Juste valeur," Post-Print halshs-00669417, HAL.
    4. Cornett, Marcia Millon & Rezaee, Zabihollah & Tehranian, Hassan, 1996. "An investigation of capital market reactions to pronouncements on fair value accounting," Journal of Accounting and Economics, Elsevier, vol. 22(1-3), pages 119-154, October.
    5. Beatty, Anne & Chamberlain, Sandra & Magliolo, Joseph, 1996. "An empirical analysis of the economic implications of fair value accounting for investment securities," Journal of Accounting and Economics, Elsevier, vol. 22(1-3), pages 43-77, October.
    6. Barth, Mary E. & Landsman, Wayne R. & Wahlen, James M., 1995. "Fair value accounting: Effects on banks' earnings volatility, regulatory capital, and value of contractual cash flows," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 577-605, June.
    7. Khurana, Inder K. & Kim, Myung-Sun, 2003. "Relative value relevance of historical cost vs. fair value: Evidence from bank holding companies," Journal of Accounting and Public Policy, Elsevier, vol. 22(1), pages 19-42.
    8. Eccher, Elizabeth A. & Ramesh, K. & Thiagarajan, S. Ramu, 1996. "Fair value disclosures by bank holding companies," Journal of Accounting and Economics, Elsevier, vol. 22(1-3), pages 79-117, October.
    9. James A. Ohlson, 1990. "A Synthesis of security valuation theory and the role of dividends, cash flows, and earnings," Contemporary Accounting Research, John Wiley & Sons, vol. 6(2), pages 648-676, March.
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    More about this item

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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