FAIR VALUE ACCOUNTING FOR COMMERCIAL-BANKS - AN EMPIRICAL-ANALYSIS OFSFAS-NO-107

This study evaluates the association between the market value of banks ' common equity and fair value estimates disclosed under Statement of Financial Accounting Standards No. 107, ''Disclosures about Fair Value of Financial instruments.'' The results suggest that only the reporte d fair values of investment securities have incremental explanatory po wer relative to book value. No reliable evidence of incremental explan atory power is found for the fair value disclosures of loans, deposits , long-term debt or net off-balance sheet financial instruments. After controlling for two competing indicators of value captured by the acc rual accounting system, ROE and growth in book value, the fair value o f securities no longer exhibits a significant association with market value. Results from estimating a returns specification, which may impl icitly control for correlated omitted variables, also exhibit no relia ble evidence of significant incremental explanatory power in the fair value estimates.