Marking‐to‐Market: Panacea or Pandora's Box?

Journal of Accounting Research - Tập 46 Số 2 - Trang 435-460 - 2008
Guillaume Plantin1,2, Haresh Sapra3, Hyun Song Shin4
1London Business School (Regents Park London NW1 4SA - United Kingdom)
2Tepper School of Business (5000 Forbes Ave., Pittsburgh, PA 15213, USA - United States)
3University of Chicago (Edward H. Levi Hall 5801 South Ellis Avenue Chicago, Illinois 60637 - United States)
4Princeton University (Princeton, NJ 08544 USA - United States)

Tóm tắt

ABSTRACTFinancial institutions have been at the forefront of the debate on the controversial shift in international standards from historical cost accounting to mark‐to‐market accounting. We show that the trade‐offs at stake in this debate are far from one‐sided. While the historical cost regime leads to some inefficiencies, marking‐to‐market may lead to other types of inefficiencies by injecting artificial risk that degrades the information value of prices, and induces suboptimal real decisions. We construct a framework that can weigh the pros and cons. We find that the damage done by marking‐to‐market is greatest when claims are (1) long–lived, (2) illiquid, and (3) senior. These are precisely the attributes of the key balance sheet items of banks and insurance companies. Our results therefore shed light on why banks and insurance companies have been the most vocal opponents of the shift to marking‐to‐market.

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Journal of Accounting Research

Tập 46 Số 2

435-460

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