Does it Matter Who Serves on the Financial Accounting Standards Board? Bob Herz's Resignation and Fair Value Accounting for Loans
Review of Accounting Studies, Forthcoming
Fordham University Schools of Business Research Paper No. 2434559
37 Pages Posted: 10 May 2014 Last revised: 12 Jun 2014
There are 2 versions of this paper
Does It Matter Who Serves on the Financial Accounting Standards Board? Bob Herz's Resignation and Fair Value Accounting for Loans
Does it Matter Who Serves on the Financial Accounting Standards Board? Bob Herz's Resignation and Fair Value Accounting for Loans
Date Written: March 2014
Abstract
Despite the perceived importance of accounting standard setters, it remains unknown whether and how much individual FASB board members can influence specific accounting policies because it is difficult to measure any board member’s impact during the process of accounting standard setting absent an exogenous shock. In this study we utilize a unique setting to answer this question. On August 24, 2010, the then FASB chairman Bob Herz resigned unexpectedly. Prior to his resignation, he had supported a highly contested accounting proposal on fair value on bank loans. Earlier in May Herz cast the deciding vote for the FASB to propose applying fair value to bank loans, causing strong pushbacks from banks and bank regulators. We examine whether Herz’s abrupt resignation changes the market’s expectation on whether the fair value proposal would be finalized. We find that banks responded positively to Herz’s resignation, more so for banks that would be affected more. They also responded negatively when the FASB first proposed the fair value requirement and positively when the FASB later dropped it. Our results indicate that the stock markets believe that Herz’s position is crucial in affecting the direction of the fair value accounting for bank loans. Our study provides initial evidence of a single FASB board member’s influence on accounting policymaking.
Keywords: Financial Accounting Standards Board, the FASB, Event Study, Individual Effect, Fair value accounting
JEL Classification: D70, D78, G18, G28, M41, M48
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Marking to Market: Panacea or Pandora's Box?
By Guillaume Plantin, Haresh Sapra, ...
-
Mark-to-Market Accounting and Liquidity Pricing
By Franklin Allen and Elena Carletti
-
The Crisis of Fair Value Accounting: Making Sense of the Recent Debate
By Christian Laux and Christian Leuz
-
Did Fair-Value Accounting Contribute to the Financial Crisis?
By Christian Laux and Christian Leuz
-
Did Fair-Value Accounting Contribute to the Financial Crisis?
By Christian Laux and Christian Leuz
-
By Weitzu Chen, Chi-chun Liu, ...
-
By Chang Joon Song, Wayne B. Thomas, ...
-
Fair Value Accounting and Financial Stability
By Andrea Enria, Lorenzo Cappiello, ...
-
Do Investors Perceive Marking-to-Model as Marking-to-Myth? Early Evidence from FAS 157 Disclosure