Reliability of Banks5 Fair Value Reporting of Mortgage Backed Securities

摘要

The financial crisis in 2008 invites an examination of the reliability of fair value disclosure particularly that of the mortgage backed securities (MBS). This study evaluates the reliability of the fair value disclosure of MBS by examining the association between the economic determinants and MBS fair value. MBS-holding entities' reporting incentives are also examined to control possible influences on MBSs fair value disclosures from firm-specific considerations. From a sample of 7726 commercial banks between 2004 and 2009 we find strong evidences that the fair value disclosure of MBS reflects the underlying economic conditions. Specifically, the fair value disclosure of MBS is found strongly associated with mortgage interest rate, delinquency rate, and house price level and change. The fair value, however, is associated with specific reporting incentives of the reporting entities. Hence the influences of the reporting incentives on the MBS fair value cannot be ruled out.