This study investigates whether banks manage the disclosed fair value of their major asset, the loan portfolio. Using two cross-section samples, I find evidence that suggests banks manage the fair value of loans. The estimated extent of overstatement of loans' fair value is negatively related to regulatory capital, asset growth, liquidity and the gross book value of loans, and positively related to the change in the rate of credit losses. These relations imply that some banks overstate the disclosed fair value of loans in an attempt to favorably affect the market assessment of their risk and performance.
Nissim, Doron. "Reliability of Banks' Fair Value Disclosure for Loans." Review of Quantitative Finance and Accounting 20, no. 4 (June 2003): 355-84.
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