AN EMPIRICAL-ANALYSIS OF THE ECONOMIC-IMPLICATIONS OF FAIR VALUE ACCOUNTING FOR INVESTMENT SECURITIES

This paper analyzes security returns of bank holding companies and ins urance companies during periods surrounding the adoption of SFAS 115. We find bank share prices were negatively affected by the examined eve nts, but find little share price reaction for insurance companies. Our evidence suggests banks were adversely affected by the standard becau se of problems with the standard's marker value accounting approach. C ross-sectional analysis of event period returns shows that banks that more frequently traded their investments, with longer maturing investm ents, and that are more fully hedged against interest rate changes, we re the most negatively impacted by the standard.