Strategic estimation of asset fair values
Accepted version
Peer-reviewed
Repository URI
Repository DOI
Change log
Authors
Hanley, KW
Jagolinzer, AD
Nikolova, S
Abstract
We examine whether fair value (FV) input levels and estimation sources are related to FV inflation, the difference between an insurer’s FV estimate and the consensus FV estimate across the security’s holders. FV inflation is higher, and self-estimation more likely, when insurers report using Level 3 inputs when the consensus level is 2. Regardless of the level, FV is greater when self-estimated. Public insurers that inflate FV through self-estimation potentially obfuscate detection by reporting the use of Level 2 inputs. Insurers with stronger incentives to appear financially healthy choose to self-estimate, resulting in greater aggregate portfolio FV inflation.
Description
Keywords
Fair value, Level 1, Level 2, Level 3, SFAS 157, Insurance companies, Regulatory capital, Asset values, Estimation bias
Journal Title
Journal of Accounting and Economics
Conference Name
Journal ISSN
0165-4101
1879-1980
1879-1980
Volume Title
66
Publisher
Elsevier