We test for the presence of adverse selection among firms adopting the fair value option for liabilities (FVOL) embedded in SFAS 159 during the financial crisis. The FVOL is a controversial accounting choice because it allows firms to increase earnings when credit quality deteriorates. We find...

There is a link between barrier options and tax shields of interest expense. We combine this link with a traditional valuation approach, to present practical valuation formulas for interest tax shields in three debt scenarios with risk of default: (1) constant debt, (2) delayed debt, and (3)...

Owners of non-publicly-traded businesses who face significant external financing costs should have a hedging preference for financial assets whose returns are positively correlated with self-financing needs. If this effect is aggregated, expected returns on financial assets should correspond...

The fair value option (FVO) embedded in both SFAS 159 and IAS 39 was introduced to allow firms to reduce earnings volatility induced from mixed-measurement accounting. Fiechter (2011) finds a reduction in earnings volatility among IAS 39 FVO adopters. In contrast, we find that earnings...

We test for the presence of adverse selection among firms adopting the fair value option for liabilities (FVOL) embedded in SFAS 159. The FVOL is a controversial accounting choice because it allows firms to increase earnings when credit quality deteriorates. We find that firms with higher credit...