AN INVESTIGATION OF CAPITAL-MARKET REACTIONS TO PRONOUNCEMENTS ON FAIR VALUE ACCOUNTING

This paper examines the impact of twenty-three pronouncements related to fair value accounting (FVA) rules on equity prices of financial ins titutions. The results document that announcements that signal an incr eased (decreased) probability of issuance of FVA standards produce neg ative (positive) abnormal stock price reactions for sample banks. Furt her, the magnitude of the stock price reactions is negatively related to a bank's primary capital ratio and positively related to the ratio of the book value of the investment portfolio to total assets and the ratio of the difference between the market and book value of the inves tment portfolio to total assets.