Banks’ asset and liability valuation in the new regulatory environment: a game theory perspective

On Post-Crisis Banks’ Fair Value Measurement Disclosure

“…Taken together, these results suggest that the intensity of use mediates the performative process between valuation techniques and ROE. Our paper extends the original dataset of Annabi and Reuben (2017) from 2 to 4 years. Moreover, we collect additional data on the intensity of use of the various valuation techniques.…”

“…This includes not only the type of valuation techniques employed by banks, the fair values of different financial instruments, but also the various unobservable inputs. 2 The banks were also required to disclose information on the statistical distribution of these inputs, such as the minimum, maximum, average and median values (this dataset was first collected by Annabi and Reuben, 2017). With this backdrop in mind, our primary goal in this paper is to analyse the unique accounting information available in the annual financial statements disclosed between 2012 and 2015, as well as the interplay between the popularity of valuation techniques among the banks, the banks' perception of the broader risk environment, and their relative performance.…”

“…This Index, like our intensity of use construct, assesses the degree to which a market device (in their case a travel destination and in our case a valuation technique) has a relationship with a performance outcome. As a measure of the banks' perception of the broader risk environment, we use a risk index that ranks the banks according to their risk perception or assessment (Annabi and Reuben, 2017). This risk index is inversely proportional to the range of unobservable inputs: the wider the range, the higher the bank's risk assessment, and vice versa.…”

“…Moreover, we collect additional data on the intensity of use of the various valuation techniques. While Annabi and Reuben (2017) examine the determinants of the choice of the valuation techniques in a game theory setting, we adopt in this paper a performativity theory framework to explore the relationship between the popularity of valuation techniques, the banks' performance and risk assessment. More specifically, we use regression analysis to investigate these associations.…”