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Market Crises and (Re)establishment of Market Order: Sociological Investigation of the “Fair Market” Rule Implementation

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Abstract:

In 2007, FASB implemented the FAS 157, or the “Fair Market Rule” which required firms to categorize their financial assets and liabilities into a three level fair value hierarchy. Since its implementation, this rule has been closely associated with the ensuing economic crisis. Consequently, we view this rule as a disruption to an existing market order and examine how investment and commercial banks implemented FAS 157 as a means to understand how market order gets established. Various perspectives in organizational theory propose different social factors that can explain how market order is established which require market actors to look to different areas within the market for cues. We suspect that these mechanisms occur simultaneously but some dominate over others. By considering the different allocations across the fair market hierarchy, we observe variation in the level of convergence in the application of the rule – commercial banks are much more similar in their application than investment banks. Our early evidence suggests that for commercial banks market order is established through convergence and conformity, and that investment banks use FAS 157 to construct and maintain distinct identities and positions in a manner more akin to White’s (1981) market schedule conceptualization. Using content and network analyses alongside standard regression models common in financial accounting, we are investigating more specific mechanisms that produce the radically different types of market order for commercial and financial banks.

Most Common Document Word Stems:

market (132), firm (112), valu (72), level (72), order (71), fair (66), asset (54), converg (53), 157 (53), fas (51), 2008 (50), 2007 (49), 1 (48), financi (45), bank (44), establish (42), 0 (38), alloc (35), rule (34), q1 (34), measur (31),
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Association:
Name: American Sociological Association Annual Meeting
URL:
http://www.asanet.org


Citation:
URL: http://citation.allacademic.com/meta/p411150_index.html
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MLA Citation:

Kahl, Steven. and Phillips, Damon. "Market Crises and (Re)establishment of Market Order: Sociological Investigation of the “Fair Market” Rule Implementation" Paper presented at the annual meeting of the American Sociological Association Annual Meeting, Hilton Atlanta and Atlanta Marriott Marquis, Atlanta, GA, Aug 14, 2010 <Not Available>. 2014-11-27 <http://citation.allacademic.com/meta/p411150_index.html>

APA Citation:

Kahl, S. and Phillips, D. J. , 2010-08-14 "Market Crises and (Re)establishment of Market Order: Sociological Investigation of the “Fair Market” Rule Implementation" Paper presented at the annual meeting of the American Sociological Association Annual Meeting, Hilton Atlanta and Atlanta Marriott Marquis, Atlanta, GA Online <APPLICATION/PDF>. 2014-11-27 from http://citation.allacademic.com/meta/p411150_index.html

Publication Type: Conference Paper/Unpublished Manuscript
Review Method: Peer Reviewed
Abstract: In 2007, FASB implemented the FAS 157, or the “Fair Market Rule” which required firms to categorize their financial assets and liabilities into a three level fair value hierarchy. Since its implementation, this rule has been closely associated with the ensuing economic crisis. Consequently, we view this rule as a disruption to an existing market order and examine how investment and commercial banks implemented FAS 157 as a means to understand how market order gets established. Various perspectives in organizational theory propose different social factors that can explain how market order is established which require market actors to look to different areas within the market for cues. We suspect that these mechanisms occur simultaneously but some dominate over others. By considering the different allocations across the fair market hierarchy, we observe variation in the level of convergence in the application of the rule – commercial banks are much more similar in their application than investment banks. Our early evidence suggests that for commercial banks market order is established through convergence and conformity, and that investment banks use FAS 157 to construct and maintain distinct identities and positions in a manner more akin to White’s (1981) market schedule conceptualization. Using content and network analyses alongside standard regression models common in financial accounting, we are investigating more specific mechanisms that produce the radically different types of market order for commercial and financial banks.


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