This setting lets you change the way you view articles. You can choose to have articles open in a dialog window, a new tab, or directly in the same window.
Open in Dialog
Open in New Tab
Open in same window
Open in New Tab
Open in same window
Journal of Economic Perspectives: Vol. 24 No. 1 (Winter 2010)
Expand
Quick Tools:
Print Article Summary Export Citation
Sign up for Email Alerts Follow us on Twitter
Explore:
Did Fair-Value Accounting Contribute to the Financial Crisis?
Article Citation
Laux, Christian, and
Christian Leuz. 2010. "Did Fair-Value Accounting Contribute to the Financial Crisis?"
Journal of Economic Perspectives,
24(1): 93-118.
DOI: 10.1257/jep.24.1.93
DOI: 10.1257/jep.24.1.93
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 2008 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, toward the overvaluation of bank assets during the crisis.
Article Full-Text Access
Full-text Article (Complimentary)
Authors
Laux, Christian (Vienna U Economics and Business)
Leuz, Christian (U Chicago)
Leuz, Christian (U Chicago)
JEL Classifications
G01: Financial Crises
G21: Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
G28: Financial Institutions and Services: Government Policy and Regulation
M41: Accounting
M48: Accounting and Auditing: Government Policy and Regulation
G21: Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
G28: Financial Institutions and Services: Government Policy and Regulation
M41: Accounting
M48: Accounting and Auditing: Government Policy and Regulation
Comments
View Comments on This Article (0) | Login to post a comment