On November 17, 2017, Christian Laux (Wirtschaftsuniversität Vienna) presented his current research topic „Accounting and the Financial Crisis: The Real Problems and Challenges – Going Forward” (co-authored with Jannis Bischof, University of Mannheim and Christian Leuz, University of Chicago's Booth School of Business) at the WHU Research Seminar in Finance & Accounting.
The authors review new empirical evidence from the recent financial crisis on the relation between financial reporting and financial stability; drawing a number of conclusions: First, there is still no evidence that fair value accounting caused widespread fire sales of asset or contagion. Second, the empirical evidence suggests that accounting and regulation might have contributed to the crisis by allowing several banks to delay actions. Third, even if share prices reacted positively to the relaxation of fair value accounting rules during the crisis, the origin of the problem might be lax rules that allowed banks to run into financial and regulatory problems. Fourth, fair values can be relevant for assets that a bank intends to hold until maturity if that bank strongly relies on short-term financing. Fifth, the recognition of fair values is no substitute for information that allows investors to judge a bank’s risk exposure and the validity of reported fair values.