NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Did Fair-Value Accounting Contribute to the Financial Crisis?

Christian Laux, Christian Leuz

NBER Working Paper No. 15515
Issued in November 2009
NBER Program(s):   CF

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 current 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, towards overvaluation of bank assets.

download in pdf format
   (143 K)

email paper

This paper is available as PDF (143 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w15515

Published: Christian Laux & Christian Leuz, 2010. "Did Fair-Value Accounting Contribute to the Financial Crisis?," Journal of Economic Perspectives, American Economic Association, vol. 24(1), pages 93-118, Winter. citation courtesy of

Users who downloaded this paper also downloaded these:
Reinhart and Rogoff w14656 The Aftermath of Financial Crises
Kedia and Philippon w11573 The Economics of Fraudulent Accounting
Taylor w14631 The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong
Greenstein and McDevitt w14758 The Broadband Bonus: Accounting for Broadband Internet's Impact on U.S. GDP
Hulten w15341 Growth Accounting
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us