The Global financial crisis and fair value accounting

how US non-financial companies played the measurement game

Changlin Zhao, Stephen Haswell, Elaine Evans

Research output: Chapter in Book/Report/Conference proceedingConference proceeding contribution

Abstract

This study examines how US companies used the Level 3 provisions of fair value accounting to value their financial assets during the 2008 global financial crisis (GFC) when relevant accounting rules regarding fair value measurements were relaxed. It contributes to the literature by providing evidence about non-financial companies’ reporting of Level 3 financial assets during the 2008 GFC. Substantially large amounts of potentially manipulable toxic assets, classified as Level 3 by US companies, are of significant importance to the US and global economy. Results of the study indicate that financially distressed companies were holding significantly larger amounts of Level 3 financial assets, which are those based on management’s own modeling of inputs. Level 3 assets are thought to be more subjectively manipulable than Level 1 or 2 inputs that are based on quoted market prices. Further, the results lend additional support to the growing belief that avoidance of toxic asset impairments has contributed centrally to the way the global financial crisis has unfolded.
Original languageEnglish
Title of host publication2012 AFAANZ conference
Subtitle of host publicationpapers
Place of PublicationMelbourne
PublisherAccounting and Finance Association of Australia and New Zealand
Pages1-37
Number of pages37
Publication statusPublished - 2012
EventAccounting and Finance Association of Australia and New Zealand Conference (2012) - Melbourne
Duration: 1 Jul 20124 Jul 2012

Conference

ConferenceAccounting and Finance Association of Australia and New Zealand Conference (2012)
CityMelbourne
Period1/07/124/07/12

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