Lessons learned from the financial crisis - unveiling alternative approaches within valuation and accounting theory

Journal title FINANCIAL REPORTING
Author/s Gerrit Brosel, Martin Toll, Mario Zimmermann
Publishing Year 2013 Issue 2012/4 Language English
Pages 21 P. 87-107 File size 529 KB
DOI 10.3280/FR2012-004006
DOI is like a bar code for intellectual property: to have more infomation click here

Below, you can see the article first page

If you want to buy this article in PDF format, you can do it, following the instructions to buy download credits

Article preview

FrancoAngeli is member of Publishers International Linking Association, Inc (PILA), a not-for-profit association which run the CrossRef service enabling links to and from online scholarly content.

In the aftermath of the financial crisis, one of the most topical research questions is what caused it. We argue that one of the causes is the insufficient theoretical background employed in most valuation cases. Over the last six decades, there has been constructive debate between the proponents of the various valuation theories. However, the advocates of the Anglo-Saxon valuation theory seem unimpressed by the outcomes, claiming that there is no viable alternative to their preferred theory. Consequently they cling to unrealistic assumptions like perfect capital markets and pure competition, and thereby deepen the financial crisis by excusing overvaluation. This research presents an alternative, functional business valuation, to assist business valuation. It indicates that knowledge of the functional theory and its application might help prevent similar undesirable developments in the future. Another cause of the financial crisis, tightly connected to the cause mentioned above, lays in the (theoretical) construct of "fair value accounting" and its undesirable pro-cyclical effects. Such effects are generally considered a matter of fact, but have rarely been linked to the neo-classical Anglo-Saxon valuation theory and its major shortcomings until now. A further factor promoting the financial crisis is the assertion that there are no useful alternatives to fair value accounting and its apotheosis to the "mark-to-market approach". A look into accounting history reveals at least one applicable alternative approach - the "historical cost principle".

Keywords: Financial crisis, business valuation, fair value accounting, historical cost accounting.

  1. Hering T. and Olbrich M. (2001), Zur Bewertung von Mehrstimmrechten, Schmalenbachs Zeitschrift für betriebswirtschaftliche Forschung, 53(1), pp. 20-38.
  2. Acharya V.V. and Richardson M. (2009), Causes of The Financial Crises, Critical Review, 21(2-3), pp. 195-210 DOI: 10.1080/08913810902952903
  3. Achleitner A.-K. and Eberle R. (2010), Switzerland, in G.J. Previts, P. Walton and P. Wolnitzer (Eds), A Global History of Accounting, Financial Reporting and Public Policy – Europe, pp. 217-242. (Bingley: Emerald).
  4. Alexander D. and Servalli S. (2010), Economia Aziendale and financial valuations in Italy: Some contradictions, Accounting History, 16(3), pp. 291-312 DOI: 10.1177/1032373211407052
  5. Arnold P. (2009), Global financial crisis: The Challenge to accounting research, Accounting, Organizations and Society, 34(6), pp. 803-809 DOI: 10.1016/j.aos.2009.04.004
  6. Barth M.E. (2004), Fair Values and Financial Statement Volatility, in C. Borio, W.C. Hunter, G. Kaufman and K. Tsatsaronis (Eds), Market Discipline across Countries and Industries, pp. 323-333. (Cambridge Mass.: MIT Press).
  7. Black F. and Scholes M. (1973), The Pricing of Options and Corporate Liabilities, Journal of Political Economy, 81(3), pp. 637-654 DOI: 10.1086/260062
  8. Bocking H.-J., Lopatta K. And Rausch B. (2005), Fair Value Bewertung versus Anschaffungskostenprinzip – ein Paradigmenwechsel in der Rechnungslegung?, in H. Bieg and R. Heyd (Eds), Fair Value, pp. 83-105. (Munich: Vahlen).
  9. Bohm von Bawerk E. (1889), Positive Theorie des Kapitales. (Innsbruck: Wagner) DOI: 10.1007/978-3-322-81429-6
  10. Brösel G. (2002), Medienrechtsbewertung. (Wiesbaden: Deutscher Universitäts-Verlag) DOI: 10.1007/978-3-322-81429-6
  11. Brösel G. (2002), Medienrechtsbewertung. (Wiesbaden: Deutscher Universitäts-Verlag), DOI: 10.1007/978-3-322-81429-6
  12. Busse von Colbe W. (1957), Der Zukunftserfolg: Die Ermittlung des zukünftigen Unternehmenserfolges und seine Bedeutung für die Bewertung von Industrieunternehmen. (Wiesbaden: Gabler).
  13. Camfferman K. (2010), The Netherlands, in G.J. Previts, P. Walton and P. Wolnitzer (Eds), A Global History of Accounting, Financial Reporting and Public Policy – Europe, pp. 107-137. (Bingley: Emerald).
  14. Dean J. (1951), Capital Budgeting. (New York: Columbia University Press).
  15. Fama E. (1970), Efficient Capital Markets: A Review of Theory and Empirical Work, Journal of Finance, 25 (2), pp. 383-417 DOI: 10.1111/j.1540-6261.1970.tb00518.X
  16. Fisher I. (1930), The Theory of Interest. (New York: MacMillan).
  17. Furubotn E.G. and Richter R. (2005), Institutions and Economic Theory. 2nd Edition. (Michigan: University of Michigan Press).
  18. Gorton G. (2009), The Subprime Mess – Tracing the Origins of the Panic of 2007, The Milken Institute Review, 11(1), pp. 36-47.
  19. Gossen H. (1854), Entwickelung der Gesetze des menschlichen Verkehrs, und der daraus fließenden Regeln für menschliches Handeln. (Braunschweig: Vieweg).
  20. Hering T. (2000), Konzeptionen der Unternehmensbewertung und ihre Eignung für mittelständische Unternehmen, Betriebswirtschaftliche Forschung und Praxis, 52(5), pp. 433-453.
  21. Hering T. (2004), Quo vadis Bewertungstheorie?, in T. Burkhardt, J. Körnert and U. Walther (Eds), Banken, Finanzierung und Unternehmensführung, pp. 105-122. (Berlin: Duncker & Humblot).
  22. Hering T. (2006), Unternehmensbewertung. 2nd Edition. (Munich: Oldenbourg Wissenschaftsverlag).
  23. Hering T., Olbrich M. and Rollberg R. (2010), Zur angelsächsischen Bewertungstheorie als Mitursache der Finanzkrise, in F. Keuper and F. Neumann (Eds), Corporate Governance, Risk Management und Compliance, pp. 29-43. (Wiesbaden: Gabler) DOI: 10.1007/978-3-8349-8946-8_2
  24. Hering T., Olbrich M. and Steinrücke M. (2006), Valuation of start-up internet companies, International Journal of Technology Management, 33(4), pp. 406-419 DOI: 10.1504/IJTM.2006.009252
  25. Hirshleifer J. (1958), On the Theory of Optimal Investment Decision. The Journal of Political Economy, 66(4), pp. 329-352 DOI: 10.1086/258057
  26. Ijiri Y. (1971), A Defense for Historical Cost Accounting, in R.R. Sterling (Ed), Asset Valuation, pp. 1-14. (Houston: Scholars Book Company).
  27. Ijiri Y. (1981), Historical Cost Accounting and its Rationality. (Vancouver: The Canadian Certified General Accountants’ Research Foundation).
  28. Jaruga A.A. and Kabalski P. (2010), Poland, in G.J. Previts, P. Walton and P. Wolnitzer (Eds), A Global History of Accounting, Financial Reporting and Public Policy – Europe, pp. 139-162. (Bingley: Emerald).
  29. Jorisson A. and Stabel P. (2010), Belgium, in G.J. Previts, P. Walton and P. Wolnitzer (Eds), A Global History of Accounting, Financial Reporting and Public Policy – Europe, pp. 1-35. (Bingley: Emerald).
  30. Käfer K. (1996), Zur Bewertung der Unternehmung, in C. Helbing (Ed), Schriftenreihe der Treuhandkammer / Schweizerische Kammer der Bücher-, Steuer- und Treuhandexperten, 136, pp. 379-384. (Zürich: Treuhand-Kammer).
  31. Khan U. (2010), Does Fair Value Accounting Contribute to Systemic Risk in the Banking Industry?, available at http://ssrn.com/abstract=1327596
  32. Lackmann F. (1962), Theorien und Verfahren der Unternehmensbewertung. 2nd Edition. (Berlin: Dunker & Humblot).
  33. Larrinaga C. and Macías M. (2010), Spain, in G.J. Previts, P. Walton and P. Wolnitzer (Eds), A Global History of Accounting, Financial Reporting and Public Policy – Europe, pp. 163-189. (Bingley: Emerald).
  34. Laux C. and Leuz C. (2009), The crises of fair-value accounting: Making sense of the recent debate, Accounting, Organizations and Society, 34(6), pp. 826-834 DOI: 10.1016/j.aos.2009.04.003
  35. Laux C. and Leuz C. (2010), Did Fair-Value Accounting Contribute to the Financial Crises?, Journal of Economic Perspectives, 24(1), pp. 93-118 DOI: 10.1257/jep.24.1.93
  36. Leuz C. (1996), Rechnungslegung und Kreditfinanzierung. (Frankfurt am Main et al.: Lang).
  37. Lieven T. (2009), Die Auswirkung bilanzieller Bewertungsregeln auf die Finanzkrise, in R. Elschen and T. Lieven (Eds), Der Werdegang der Krise, pp. 115-140. (Wiesbaden: Gabler) DOI: 10.1007/978-3-8349-8547-7_6
  38. Matschke M.J. (1972), Der Gesamtwert der Unternehmung als Entscheidungswert, Betriebswirtschaftliche Forschung und Praxis, 24(3), pp. 146-161.
  39. Matschke M. J. (1975), Der Entscheidungswert der Unternehmung. (Wiesbaden: Gabler).
  40. Matschke M.J. (1976), Der Argumentationswert der Unternehmung – Unternehmensbewertung als Instrument der Beeinflussung in der Verhandlung, Betriebswirtschaftliche Forschung und Praxis, 28(6), pp. 517-524.
  41. Matschke M. J. (1979), Funktionale Unternehmensbewertung: Band II: Der Arbitriumwert der Unternehmung. (Wiesbaden: Gabler).
  42. Matschke M.J. (1995), Unternehmensbewertung: Anlässe und Konzeptionen, in H. Corsten (Ed), Lexikon der Betriebswirtschaftslehre, 3rd Edition. (Munich/Vienna: Oldenbourg).
  43. Matschke M.J. and Brösel G. (2003), Die Bewertung kleiner und mittlerer Unternehmen mit dem Zustands-Grenzpreismodell unter besonderer Berücksichtigung möglicher Folgen von “Basel II”, in J.-A. Meyer (Ed), Unternehmensbewertung und Basel II, pp. 157-181. (Lohmar: Eul).
  44. Matschke M.J. and Brösel G. (2007), Unternehmensbewertung. 3rd Edition. (Wiesbaden: Gabler).
  45. Matschke M.J., Brösel G. and Matschke X. (2010), Fundamentals of Functional Business Valuation, Journal of Business Valuation and Economic Loss Analysis, 5(7), pp. 1-39.
  46. Mattessich R. (2008), Two Hundred Years of Accounting Research. (London and New York: Routledge).
  47. McSweeney B. (2009), The roles of financial asset market failure denial and the economic crisis: Reflections on accounting and financial theories and practices, Accounting, Organizations and Society, 34(6), pp. 835-848 DOI: 10.1016/j.aos.2009.04.007
  48. Mellerowicz K. (1952), Der Wert der Unternehmung als Ganzes. (Essen: Girardet).
  49. Menger C. (1871), Grundsätze der Volkswirthschaftslehre. (Vienna: Wilhelm Braumüller).
  50. Modigliani F. and Miller M.H. (1958), The Cost of Capital, Corporation Finance and the Theory of Investment, American Economic Review, 48(3), pp. 261-297.
  51. Modigliani F. and Miller M.H. (1963), Corporate Income Taxes and the Cost of Capital: A Correction, American Economic Review, 53(3), pp. 433-443.
  52. Münstermann H. (1966), Wert und Bewertung von Unternehmen. (Wiesbaden: Gabler).
  53. Olbrich M. (2000), Zur Bedeutung des Börsenkurses für die Bewertung von Unternehmen und Unternehmungsanteilen, Betriebswirtschaftliche Forschung und Praxis, 52(5), pp. 454-465.
  54. Olbrich M. and Brösel G. (2007), Inkonsistenzen der Zeitwertbilanzierung nach IFRS: Kritik und Abhilfe, Der Betrieb, 60(29), pp. 1543-1548
  55. Olbrich M., Brösel G. and Hasslinger M. (2009), The Valuation of Airport Slots, Journal of Air Law and Commerce, 74(4), pp. 897-917.
  56. Panetta et al. (2009), Financial sector pro-cyclicality – Lessons from the crises, in Questioni di Economia e Finanza. (Roma: BANCA D’ITALIA).
  57. Penman S.H. (2007), Financial reporting quality: is fair value a plus or a minus?, Accounting and Business Research, 37(Special Issue), pp. 33-44.
  58. Pfaff D., Pfeiffer T. and Gathge D. (2002), Unternehmensbewertung und Zustands- Grenzpreismodelle, Betriebswirtschaftliche Forschung und Praxis, 54(2), pp. 198-210
  59. Quagli A. and Avallone F. (2010), Fair Value or Cost Model? Drivers of Choice for IAS 40 in the Real Estate Industry, European Accounting Review, 19(3), pp. 461-493 DOI: 10.1080/09638180.2010.496547
  60. Reicherter M. (2000), Fusionsentscheidung und Wert der Kreditgenossenschaft. (Wiesbaden: Gabler).
  61. Riahi-Belkaoui A. (2005), Accounting Theory. (London: Thomson).
  62. Rollberg R. (2009), Angelsächsische Bewertungstheorie als Finanzkrisenverstärker, Die Steuerberatung, (10), pp. M1
  63. Ryan S.G. (2009), Fair Value Accounting – Policy Issues Raised by the Credit Crunch, in V.V. Acharya and M. Richardson (Eds), Restoring Financial Stability, pp. 215-228. (Hoboken, New Jersey: Wiley).
  64. Schildbach T. (2012), Fair Value, Subprime-Krise und Destabilisierung der Wirtschaft, Deutsches Steuerrecht, 50(9), pp. 474-480
  65. Schmalenbach E. (1917/1918), Die Werte von Anlagen und Unternehmungen in der Schätzungstechnik, Zeitschrift für handelswissenschaftliche Forschung, 12, pp. 1-20.
  66. Sharman P.A. and Vikas K. (2004), Lessons from German Cost Accounting, Strategic Finance, December 2004, pp. 28-35.
  67. Sharpe W.F. (1964), Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk, The Journal of Finance, 19(3), pp. 425-442 DOI: 10.1111/j.1540-6261.1964.tb02865.X
  68. Shleifer A. (2003), Inefficient Markets. (Oxford: Oxford University Press).
  69. Sieben G. (1968), Bewertung von Erfolgseinheiten. (Köln: Habilitationsschrift).
  70. Sieben G. (1988), Unternehmensstrategien und Kaufpreisbestimmung, in Festschrift 40 Jahre Der Betrieb, pp. 81-91.
  71. Velte P. and Haaker A. (2012), Entwicklung der Zeitwertbilanzierung im Handels- und Steuerrecht, Steuer und Wirtschaft, 42(1), pp. 56-70.
  72. Vogel D.H. (2002), M & A – Ideal und Wirklichkeit. (Wiesbaden: Gabler) DOI: 10.1007/978-3-322-91292-3
  73. Whalen R.C. (2008), The Subprime Crises – Cause, Effect and Consequences, Networks Financial Institute at Indiana State University, Policy Brief, available at http://ssrn.com/abstract=1113888.
  74. Whittington G. (2008), Fair Value and the IASB/FASB Conceptual Framework Project: An Alternative View, Abacus, 44(2), pp. 139-168 DOI: 10.1111/j.1467-6281.2008.00255.X

  • Unternehmensbewertung und ökonomische Analyse Florian Follert, Stefan Behringer, pp.69 (ISBN:978-3-658-40234-1)
  • Eugen Schmalenbach, Austrian economics, and German business economics Michael Olbrich, David J. Rapp, Florian Follert, in The Review of Austrian Economics /2022 pp.205
    DOI: 10.1007/s11138-020-00520-x
  • On the Political Decision of Audit Market Regulation: Empirical Evidence of Audit Firm Tenure and Maximum Durations within the European Union Markus Widmann, Florian Follert, Matthias Wolz, in Economies /2021 pp.79
    DOI: 10.3390/economies9020079
  • Agree or Disagree? On the Role of Negotiations for the Valuation of Business Enterprises Florian Follert, Jeffrey Herbener, Michael Olbrich, David Rapp, in Quarterly Journal of Austrian Economics /2019 pp.315
    DOI: 10.35297/qjae.010001

Gerrit Brosel, Martin Toll, Mario Zimmermann, Lessons learned from the financial crisis - unveiling alternative approaches within valuation and accounting theory in "FINANCIAL REPORTING" 4/2012, pp 87-107, DOI: 10.3280/FR2012-004006