Fair value accounting and value relevance of equity book value and net income for European financial firms during the crisis

Sami Adwan; Alaa Alhaj Ismail; Claudia Girardone

doi:10.1016/j.intaccaudtax.2020.100320

Fair value accounting and value relevance of equity book value and net income for European financial firms during the crisis

Sami Adwan
, Alaa Alhaj Ismail
, Claudia Girardone

University of Essex
University of Sussex

Research output: Contribution to journal › Article › peer-review

19 Citations (Scopus)

661 Downloads (Pure)

Abstract

This paper examines whether and how the level of exposure to fair value accounting moderates the changes in the value relevance of equity book value and net income during a crisis period. Using a sample of European listed financial firms over 2005-2011, our analysis confirms prior literature that the value relevance of book value of equity increases, while that of net income decreases during the financial crisis. More importantly, our findings offer robust support for the hypothesis that the impact of the crisis is less pronounced for firms whose financial statements are more exposed to fair value accounting. This evidence can be explained by the increased valuation weight placed by investors on the book value of equity relative to net income for firms with more exposure to fair value in the pre-crisis period.

Original language	English
Article number	100320
Number of pages	12
Journal	Journal of International Accounting, Auditing and Taxation
Volume	39
Early online date	21 May 2020
DOIs	https://doi.org/10.1016/j.intaccaudtax.2020.100320
Publication status	Published - Jun 2020

Bibliographical note

© 2020, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/

Copyright © and Moral Rights are retained by the author(s) and/ or other copyright owners. A copy can be downloaded for personal non-commercial research or study, without prior permission or charge. This item cannot be reproduced or quoted extensively from without first obtaining permission in writing from the copyright holder(s). The content must not be changed in any way or sold commercially in any format or medium without the formal permission of the copyright holders.

Keywords

Value Relevance
Fair Value
Financial Crisis
Financial Firms
Financial firms
Fair value
Value relevance
Financial crisis

ASJC Scopus subject areas

Accounting
Finance

Access to Document

10.1016/j.intaccaudtax.2020.100320

Post-PrintAccepted author manuscript, 853 KBLicence: CC BY-NC-ND

Cite this

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title = "Fair value accounting and value relevance of equity book value and net income for European financial firms during the crisis",

abstract = "This paper examines whether and how the level of exposure to fair value accounting moderates the changes in the value relevance of equity book value and net income during a crisis period. Using a sample of European listed financial firms over 2005-2011, our analysis confirms prior literature that the value relevance of book value of equity increases, while that of net income decreases during the financial crisis. More importantly, our findings offer robust support for the hypothesis that the impact of the crisis is less pronounced for firms whose financial statements are more exposed to fair value accounting. This evidence can be explained by the increased valuation weight placed by investors on the book value of equity relative to net income for firms with more exposure to fair value in the pre-crisis period. ",

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AU - Girardone, Claudia

N1 - © 2020, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/ Copyright © and Moral Rights are retained by the author(s) and/ or other copyright owners. A copy can be downloaded for personal non-commercial research or study, without prior permission or charge. This item cannot be reproduced or quoted extensively from without first obtaining permission in writing from the copyright holder(s). The content must not be changed in any way or sold commercially in any format or medium without the formal permission of the copyright holders.

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N2 - This paper examines whether and how the level of exposure to fair value accounting moderates the changes in the value relevance of equity book value and net income during a crisis period. Using a sample of European listed financial firms over 2005-2011, our analysis confirms prior literature that the value relevance of book value of equity increases, while that of net income decreases during the financial crisis. More importantly, our findings offer robust support for the hypothesis that the impact of the crisis is less pronounced for firms whose financial statements are more exposed to fair value accounting. This evidence can be explained by the increased valuation weight placed by investors on the book value of equity relative to net income for firms with more exposure to fair value in the pre-crisis period.

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KW - Value relevance

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Fair value accounting and value relevance of equity book value and net income for European financial firms during the crisis

Abstract

Bibliographical note

Keywords

ASJC Scopus subject areas

Access to Document

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