Mark to market accounting: Does it provide information to investors

Abstract

According to the financial press the recent financial problems of many firms is at least partially due to mark-to-market accounting. In this paper I ask the question - if mark-to-market accounting is the reason for the financial distress of firms, why does the FASB require mark-to-market? I review accounting standards that require mark-to-market accounting and empirically test the relation between firm value and mark to market adjustments to provide evidence as to whether mark-to-market adjustments are useful to investors and creditors. The results provide evidence that mark-to-market adjustments impact firm value.