On Post-Crisis Banks’ Fair Value Measurement Disclosure

Abstract

In this paper, we study the interplay between the popularity of valuation techniques adopted by the banks, the banks’ perception of the broader risk environment, and their relative performance. In examining this relationship, we rely on the performativity theory as it applies to the fields of accounting and economic sociology. Our data consists in newly disclosed accounting information collected from banks’10-K and 20-F reports from 2012 to 2015. We use four key ingredients in our model: (1) the banks’ return on equity as a proxy for performance; (2) the range of unobservable inputs as a proxy for the banks’ risk assessment; (3) the intensity of use of valuation techniques, as a proxy for the popularity of these techniques; (4) valuation technique as market devices in the performative process. The regression results suggest that that the intensity of use of valuation techniques mediates the performative process between valuation techniques and banks’ performance.