The value relevance of fair value and historical cost measurements during the financial crisis

Abstract

Abstract The roles played by fair value (FV) and historical cost (HC) measurements during the financial crisis (2008–2009) remain controversial. We investigate the relative and incremental value relevance of assets and liabilities measured at FV and HC for financial institutions from 25 European countries before and during the financial crisis. We find that FV is more relatively value relevant than HC during the crisis but not before. HC and FV are, however, incrementally value relevant to each other both before and during the financial crisis. Our results are influenced by cross‐country differences.