Assessing the Impact of Fair‐Value Accounting on Financial Statement Analysis: A Data Envelopment Analysis Approach

The historical‐cost and prudence principles have guided accounting for financial investments and tangible fixed assets in many jurisdictions around the globe. This situation might change as a consequence of the increasing number of countries adopting International Financial Reporting Standards (IFRS), which, to some extent, permit accounting on a fair‐value basis. It is unclear how such a change would affect the analysis of financial statements and to what extent it could modify analysts' perceptions of companies' condition and performance. This paper attempts to shed some light on this issue by restating the financial investments and tangible fixed assets of a sample of 85 Spanish insurance companies, applying fair value instead of historical‐cost‐based valuations and by simulating analyst perception of these companies' efficiency and profitability for both sets of data using data envelopment analysis (DEA). We find that the numbers on the face of the financial statements change considerably and observe that the magnitude of these changes varies between companies and classes of assets. However, only in a few cases does a change in the valuation basis lead to a relevant change in DEA scores; within our sample, the overall assessment of companies with regard to efficiency and profitability remains largely the same under both valuation bases. These findings seem to indicate that a change from historical‐cost to fair‐value accounting could alter analyst perceptions of a limited number of companies but likely will not have a major impact on the appraisal of the majority of them.     

Coordinated Punishment and the Evolution of Cooperation

In this paper, we analyze a team trust game with coordinated punishment of the allocator by investors and where there is also a final stage of peer punishment. We study the effect of punishment on the reward and the investment decisions, when the effectiveness and cost of coordinated punishment depend on the number of investors adhering to this activity. The interaction takes place in an overlapping‐generations model with heterogeneous preferences and incomplete information. The only long‐run outcomes of the dynamics are either a fully cooperative culture (FCC) with high levels of trust and cooperation and fair returns or a non‐cooperative culture with no cooperation at all. The basin of attraction of the FCC is larger; the higher the institutional capacity of coordinated punishment, the higher the level of peer pressure and the smaller the individual cost of coordinated punishment.     

Discount Rates,Debt Maturity,and the Fiscal Theory

This paper examines how the transmission of government portfolio risk arising from maturity operations depends on the stance of monetary/fiscal policy. Accounting for risk premia in the fiscal theory allows the government portfolio to affect expected inflation, even in a frictionless economy. The effects of maturity rebalancing on expected inflation in the fiscal theory depend directly on the conditional nominal term premium, giving rise to an optimal debt-maturity policy that is state-dependent. In a calibrated macrofinance model, we demonstrate that maturity operations have sizable effects on expected inflation and output through our novel risk transmission mechanism.