James M. Wahlen

Fair Values of Equity and Debt Securities and Share Prices of Property-Liability Insurers

This study analyzes the relation between fair values of equity and fixed maturity debt securities and share prices of property-liability insurers. We find that property- liability share prices can be explained by fair values of equity investments and U.S. Treasury investments, even after controlling for historical costs. Fair value disclosures for other types of investment securities (e.g., municipal and corporate bonds) do not explain share prices beyond historical costs. Our results suggest that the reliability of fair value estimates for different types of securities affects the value-relevance of related disclosures.

Discretionary and Non-Discretionary Revisions of Loss Reserves by Property-Casualty Insurers: Differential Implications for Future Profitability, Risk and Market Value

We develop and estimate a PC-industry specific model in which proxies for both discretion and non-discretion are used to partition loss reserve revisions into discretionary and non-discretionary components. The use of such proxies enables us to test directional hypotheses about the relations between the revision components and future profitability, risk and market value. We predict and find that discretionary revisions are negatively associated with future profitability, positively associated with firm risk, and negatively associated with market-to-book ratios. We predict and find that non-discretionary revisions are positively associated with future profitability and risk but are not associated with market-to-book ratios.

Discussion of: "Do Stock Prices of Property Casualty Insurers Fully Reflect Information About Earnings, Accruals, Cash Flow and Development?"

My remarks are intended to accomplish two primary objectives. My first objective is to describe how this paper contributes to several streams of current research, offer a few observations on the strengths and limitations of the research design, and consider several ways one might interpret the results. My second objective is to describe several opportunities for future studies by Bill Beaver and Maureen McNichols or other researchers to extend this line of research to address related questions. I have organized these remarks into the following sections: overview of the paper; strengths of the analysis; opportunities to refine the analysis; interpretations of the results; and potential extensions.

Discussion¿Differential Pricing of Components of Bank Loan Fair Values

I appreciate the opportunity to discuss “Differential Pricing of Components of Bank Loan Fair Values,” by Bill Beaver and Mohan Venkatachalam. This discussion is intended to accomplish three primary objectives. The first objective is to describe how the Beaver-Venkatachalam study contributes to several streams of current research. Second, this discussion offers a constructive critique of the study with a few observations on the strengths and limitations of the research design, and alternate interpretations of the results. The third objective is to suggest opportunities for fume studies to extend this line of research. Not surprisingly, given those three objectives, I have organized these remarks into the following three sections: contributions of the study, strengths and limitations of the analysis, and potential future research.