Contemporary Accounting Research Vol. 24 No. 2 2007
Strategic Consequences of Historical Cost and Fair Value Measurements*
Abstract
This paper examines the measurement of non-financial assets in imperfectly competitive markets and considers the effect of alternative measurements on firms' investing and operating activities. We analyze a duopoly where each firm manufactures, reports, and thereafter sells its inventory. We initially characterize the informativeness of a firm's accounting report when it is prepared using historical cost and find a firm's report does not always reveal its level of inventory. We then characterize the informativeness of a report when it is prepared using fair value and find it completely reveals a firm's inventory holding. We highlight the difficulty of implementing fair value measurements that arise because fair value is an endogenous consequence of the strategic interaction between firms.
- DOI
- 10.1506/0274-9457-gp27-5215
- Volume
- 24
- Issue
- 2
- Pages
- 557-584
- Language
- en
- Sources
- openalex crossref