On Wednesday, April 14th, 11 am ET, we will be joined by Eddie Riedl (Harvard University). Eddie will discuss on-going research relating to fair value accounting. This will include a paper co-authored with George Serafeim (also of Harvard University), entitled “Information Risk and Fair Values: An Examination of Equity Betas.”

He will both overview an alternative research design to measuring information risk, as well as discuss results from analysis of Level 1, 2, and 3 fair values in financial firms. Eddie is also planning to discuss related research on fair value adoption in other contexts, including the real estate industry.

The abstract of his paper on information risk follows in its entirety:

Using a sample of U.S. financial institutions, we exploit recent mandatory disclosures of financial instruments designated as fair value level 1, 2, and 3 to test whether greater opacity in financial instrument fair values leads to higher cost of capital. We derive an empirical model allowing asset-specific estimates of implied betas, and find evidence that firms with greater exposure to level 3 financial assets exhibit higher betas relative to those designated as level 1 or level 2. We further find that this difference in implied betas across fair value designations is more pronounced for firms expected to have less informative disclosure environments: those firms with lower analyst following, lower market capitalization, higher analyst forecast errors, or higher analyst forecast dispersion. Overall, the results are consistent with a higher cost of capital for more opaque financial assets, but also suggest that effective disclosures can mitigate opacity across the fair value designations.

I hope you will join us on Wednesday, and remember that you can attend Round Table Discussions in Second Life (instructions here) or on the web at our LIVE page.

***********  UPDATE **************

Due to technical difficulties, we have rescheduled this Round Table Discussion for Wednesday, April 28 at 11 am ET.

Please join us!

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* UPDATE: You can watch the archived video of this Round Table event here.