Statement of Financial Accounting Standard No. 157 states that "unobservable inputs [management-developed estimates of Level 3 fair-values] shall be used to measure fair-value to the extent that observable inputs are not available". The discretion afforded to managers by allowing them to develop their own estimates of fair-value creates a moral hazard that allows managers to engage in capital and/or earnings management. This study investigates whether bank managers are using Level 3 fair-value estimates in an opportunistic manner in order to meet capital adequacy requirements and/or earnings expectations. I find evidence suggesting bank managers choose the fair-value estimates of Level 3 instruments in order to report current earnings that are positive and more than prior quarter earnings. While previous work has shown that quoted values from illiquid markets contain unwanted noise, the results of this study suggest that allowing managers to use Level 3 estimates can have similar drawbacks if managers choose to use their private information in an opportunistic fashion. My findings support recent efforts by regulators to expand SFAS 157-related disclosures (FASB 2009) in an effort to increase transparency with respect to Level 3 instruments. / A Dissertation submitted to the Department of Accounting in partial fulfillment of the requirements for the degree of
Doctor of Philosophy. / Spring Semester, 2011. / March 31, 2011. / Earnings Targets, Level 3, Fair-value, Capital Adequacy, Bank / Includes bibliographical references. / Frank Heflin, Professor Directing Dissertation; James Ang, University Representative; Rick Morton, Committee Member; Jeffrey Paterson, Committee Member.
| Identifer | oai:union.ndltd.org:fsu.edu/oai:fsu.digital.flvc.org:fsu_254344 |
| Contributors | Valencia, Adrian (authoraut), Heflin, Frank (professor directing dissertation), Ang, James (university representative), Morton, Rick (committee member), Paterson, Jeffrey (committee member), Department of Accounting (degree granting department), Florida State University (degree granting institution) |
| Publisher | Florida State University, Florida State University |
| Source Sets | Florida State University |
| Language | English, English |
| Detected Language | English |
| Type | Text, text |
| Format | 1 online resource, computer, application/pdf |
| Rights | This Item is protected by copyright and/or related rights. You are free to use this Item in any way that is permitted by the copyright and related rights legislation that applies to your use. For other uses you need to obtain permission from the rights-holder(s). The copyright in theses and dissertations completed at Florida State University is held by the students who author them. |
Page generated in 0.0107 seconds