Location of Repository

Disclosure, transparency, and market discipline

By Xavier Freixas and Christian Laux

Abstract

The aim of this paper is to examine what has been the role of information provision to the market throughout the crisis. We consider two main sources of information to the market, financial statements and information provided by credit rating agencies. We examine how these sources of information work and the effectiveness of their disclosure process during the crisis. Contrary to the commonly held view, fair value accounting did not have a major impact on the crisis development and severity. However, the structure and lack of accountability of credit rating agencies had a profound impact on their incentives, which may have jeopardized the accuracy of the whole rating process. We claim that the crisis experience has changed the way we think about information as well as market discipline and discuss policy implications and proposals for regulation. JEL Classification: G01, G24, G28, M41, M4

Topics: ddc:330
Year: 2011
OAI identifier: oai:publikationen.ub.uni-frankfurt.de:16267

Suggested articles

Preview

Citations

  1. (2009b), “The Role of Incentives and Reputation in the Rating of Mortgage-Backed Securities,” mimeo, Federal Reserve Bank of doi
  2. (2003). A survey of behavioral finance,” doi
  3. (2009). Accounting Discretion of Banks During a Financial Crisis,” SSRN Working Paper Series, doi
  4. (2010). Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities,” Financial Accounting Series, Exposure Draft: Proposed Accounting Standards Update, doi
  5. (2010). CDOs and Systematic Risk: Why Bond Ratings are Inadequate,” mimeo,
  6. (2008). Committee on the Global Financial System (CGFS,
  7. (2006). Competition and cooperation among exchanges: A theory of cross-listing and endogenous listing standards,” doi
  8. (2009). Deciphering the Liquidity and Credit Crunch 2007–2008,” doi
  9. (2010). Did Fair-Value Accounting Contribute to the Financial Crisis?,” doi
  10. (2008). Economic Consequences of Financial Reporting and Disclosure Regulation: A Review and Suggestions for Future Research,” Working Paper. doi
  11. (1989). Efficient Capital Markets, Inefficient Firms: A Model of doi
  12. (2010). Fallacies, Irrelevant Facts, and Myths in the Discussion of Capital Regulation: Why Bank Equity is Not Expensive,” mimeo, doi
  13. (2008). Financial Regulation in a System Context,” Brooking Papers on Economic Activity, doi
  14. (2000). Inefficient Markets: An Introduction to Behavioral Finance,” doi
  15. (1976). Information and Competitive Price Systems,”
  16. (2008). Lehman Cuts $130 Billion of Assets to End Bear Stigma.” Bloomberg.com,
  17. (2009). Level Playing Fields in doi
  18. (1999). Managerial Incentive Problems – A Dynamic Perspective,” doi
  19. (2008). Mark-to-market accounting and liquidity pricing,” doi
  20. (2008). Marking-to-Market: Panacea or Pandora’s Box?,” doi
  21. MBS ratings and the mortgage credit boom,” mimeo, Federal Reserve Bank of doi
  22. (2010). Merrill’s Risk Disclosure Dodges Are Unearthed,”
  23. (1979). Moral Hazard and Observability,” The doi
  24. (2009). Opacity and the Optimality of Debt for Liquidity Provision,” Working Paper.
  25. (2003). Regulating Banks through Market Discipline: A Survey of the Issues,” doi
  26. (2011). Stressed Out: Macroprudential Principles for Stress Testing,” Conference draft prepared for the U.S. Monetary Policy Forum. doi
  27. (2009). Systemic Risk in the Financial Sector: An Analysis doi
  28. (2009). The Credit Rating Crisis,” doi
  29. (2009). The Crisis of Fair-Value Accounting: doi
  30. (2008). The Failure of Models That Predict Failure: Distance, doi
  31. (2008). The Panic of 2007,” in Maintaining Stability in a Changing Financial System,”
  32. (2008). Understanding the Securitization of Subprime Mortgage Credit,” Federal Reserve Bank of New York Staff Reports No. doi
  33. (1998). Using Market Information in Prudential Bank Supervision: A Review of the U.S. doi

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.