The effect of fair value accounting on the performance evaluation role of earnings

摘要

We study the effect of fair value accounting on the association between net income and cash pay following the 2005 worldwide adoption of IFRS. We find that, while IFRS's non-fair-value provisions are associated with an increase in this association, its fair value provisions are associated with a decrease in this association. Overall, we contribute to the literature on the usefulness of fair value accounting by presenting evidence that fair value accounting is associated with a decrease in this association. Under assumptions that we detail and subject to caveats that we detail, our evidence suggests that fair value accounting may reduce the usefulness of earnings in evaluating management performance. (C) 2020 Elsevier B.V. All rights reserved.