The Usefulness of the Fair Value Option to Reduce Information Asymmetry Using Analysts’ Forecast Dispersion
Date Issued
2009
Date
2009
Author(s)
Chiou, Jia-Huei
Abstract
A sample of 380 U.S. bank holding companies from 2006 to 2007 is collected to study the usefulness of the fair value option to reduce information asymmetry. In February 2007, the Financial Accounting Standards Boards (FASB) released Statement 159,“The Fair Value Option for Financial Assets and Financial Liabilities. The statement provides companies the option of reporting selected financial assets and liabilities at fair value. Under the assumption that the fair value option adoption may achieve economic hedge effect and provide more available disclosures to users, I investigate whether the fair value option adoption is associated inversely with information asymmetry by focusing on analysts’ forecast dispersion. Results of the present study are inconsistent with the hypotheses. Two alternative explanations for the empirical results are that the U.S subprime mortgage crisis event might affect the FVO data period due to the short time span of research. Also, earnings management incentive might be one of the adoption reasons for the managers at the first adoption year because the remeasurement of the eligible item existing at effective date to fair value is recorded as a cumulative-effect adjustment to the opening balance of retained earnings. Hence, this paper does not find consistent empirical support for decreased information asymmetry while the bank holding companies adopt the FVO.
Subjects
SFAS No.159
fair value option
information asymmetry
analysts’ earnings forecasts
analysts’ forecasts dispersion
bank holding companies
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