In spite of this persistent trend to ward fair value, the reform has aroused controversial
Academics’ debate is usually referred to financial instruments and framed within the
agency theory, supposing information asymmetry between market participants and the
existence of perfect versus imperfect market conditions. Barth and Landsman (1995)
concluded that in perfect and complete markets a fair value accounting-based balance
sheet reflects all value-relevant information. However, in more realistic market settings
management discretion applied to fair valuation can detract from balance sheet and
income statement relevance. Watts (2003) argues that fair valuationis subjectto more
manipulation and, accordingly, is a poorer measure of worth and performance. Rayman
(2007) concludes that fair value accounting is liable to produce absurdities and
misleading information, if it isbased on expectations that turn out to be false. In the
same vein, Liang and Wen (2007) are critical with the beneficial effects of moving to
fair valuation because it inherits more managerial manipulation and induce less efficient
investment decisions than cost valuations. Plantin and Sapra (forthcoming) conclude
that, when there are imperfections in the market, there is the danger of the emergence of
an additional source of volatility as a consequence of fairvaluation, and thus a rapid
shift to full mark-to-market regime may be detrimental to financial intermediation and
therefore to economic growth