Is historical cost accounting a panacea? Market stress, incentive distortions, and gains trading

• Autores: Andrew Ellul, Chotibhak Jotikasthira, Christian T. Lundblad, Yihui Wang
• Localización: The Journal of finance, ISSN 0022-1082, Vol. 70, Nº 6, 2015, págs. 2489-2538
• Idioma: inglés
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• Resumen

  • Accounting rules, through their interactions with capital regulations, affect financial institutions’ trading behavior. The insurance industry provides a laboratory to explore these interactions: life insurers have greater flexibility than property and casualty insurers to hold speculative-grade assets at historical cost, and the degree to which life insurers recognize market values differs across U.S. states. During the financial crisis, insurers facing a lesser degree of market value recognition are less likely to sell downgraded asset-backed securities. To improve their capital positions, these insurers disproportionately resort to gains trading, selectively selling otherwise unrelated bonds with high unrealized gains, transmitting shocks across markets