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Fair value accounting and the financial crisis: a literature-based analysis

Elisa Menicucci (Department of Management, Polytechnic University of Marche, Ancona, Italy)
Guido Paolucci (Department of Management, Polytechnic University of Marche, Ancona, Italy)

Journal of Financial Reporting and Accounting

ISSN: 1985-2517

Article publication date: 4 July 2016

6149

Abstract

Purpose

The aim of this paper is to review the main results of accounting research literature examining the role of fair value accounting (FVA) within financial crisis. This research analyzes theoretical and empirical studies on the controversial topic about FVA and its alleged pro-cyclicality in the context of the financial crisis to offer solid reflections for improving the fair value research agenda.

Design/methodology/approach

This paper consists of a descriptive literature review. Theoretical and empirical research studies were investigated and then systematized in a framework to guide a literature-based analysis and critique of the relevant literature published about this topic.

Findings

The review reveals that there has been only a limited amount of research into the role of FVA within the financial crisis. This topic has not been researched extensively, and there is no empirical evidence that FVA caused the financial crunch and the subsequent financial crisis.

Research limitations/implications

The restricted amount of literature that directly deals with FVA in the context of the financial crisis is the main limitation of this paper. The specificity of the theme narrows the coverage. However, the adopted research methodology enabled the main contributions concerning this issue to be collected, to realize a concise and comprehensive portrait of the debate surrounding FVA and the financial crisis.

Practical implications

This paper can be of use to both researchers and practitioners interested in investigating strengths and weaknesses of the fair value concept for accounting purposes. The paper sets out the main findings of the academic literature and identifies future avenues of theoretical and practical research which may support standard setters to draw up improved accounting regulation.

Originality/value

Few existing studies consist of a literature review that examines theoretical and empirical researches on the influence of FVA on the financial system. This review offers a comprehensive overview on research literature concerning the responsibility of FVA in causing the financial crisis. The main contribution of this paper relates to further understanding the role and effects of accounting matters concerning fair value in a broad sense within the context of the financial crisis.

Keywords

Citation

Menicucci, E. and Paolucci, G. (2016), "Fair value accounting and the financial crisis: a literature-based analysis", Journal of Financial Reporting and Accounting, Vol. 14 No. 1, pp. 49-71. https://doi.org/10.1108/JFRA-05-2014-0049

Publisher

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Emerald Group Publishing Limited

Copyright © 2016, Emerald Group Publishing Limited

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