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...

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...