The social construction and operational significance of fair values: A case study of a financial services organisation

  • Jennifer Cleverton

Student thesis: Doctor of Business Administration


The focus of this doctoral research is on developing an enhanced understanding of the nature and operational significance of fair values by studying the organisational systems and processes through which such values are produced. The external reporting of fair values in corporate financial statements has created significant controversy and debate, particularly during the global financial crisis with various accusations and competing defences as to whether or not such a form of accounting caused or exacerbated the crisis. Fair value accounting has been debated mainly from a relevance and reliability perspective, with much attention paid to the relative usefulness of fair value accounting to investors and claims and counter claims relating to the reliability and subjectivity of fair values compared to historical costing approaches. Investigation into implementation issues affecting reliability, however, has been little studied. While an emerging strand of the literature has pointed to the importance of recognising fair value accounting's social constructed nature, relatively few research papers have examined the construction of fair values and the ways in which such values are shaped by social and organisational contextual influences. This research contributes to such an emerging literature through a detailed case study of the construction of fair values in an international financial services organisation. The primary focus of analysis is the work of the organisation's central governing body in this area, namely its Fair Value Committee (FVC). The work of the FVC provides a rich empirical base from which to examine the key factors and perspectives influencing the organisation's approach to fair values. In particular, through a detailed analysis of its formal minutes and supporting interviews with senior members of the FVC and other key organisational actors, the research documents and reflects on the nature and direction of change that the organisation experienced during the global financial crisis with respect to the operation of its fair value system. The main research findings in relation to the nature of the fair value system are: Firstly, the operation of an organisational fair value accounting system emerges not as a demonstrative example of objective, arm's length pricing but as a social, relational process influenced by the organisational context. Secondly, in studying the way in which fair values are made sense of or constructed to be market consistent, patterns of sensemaking generally invoke a rational and prudent view of the market, which stimulates questioning as to whether fair value accounting is inherently pro-cyclical and exacerbates swings in the financial market. Thirdly, 'fair value' pricing should not be seen as being without a semblance of order and routine. Fourthly, the observed growing dependency of fair value accounting on valuation experts provides confirmation of the weakening jurisdictional authority of auditors and their monitoring role in overseeing fair value accounting. Finally, the research reveals clear evidence of the constitutive effects of fair value accounting on the organisation's investment policy and permitted investments. As such, the acceptance of specialist models to construct fair values should not only be seen as being reflective of the particular organisational context but also serving in part to permit (and encourage) investments in esoteric financial instruments - a constitutive impact on the organisation's investment strategy and risk profile. The study encourages a greater empirical analysis of the operational construction, development and utilisation of fair values so as to advance knowledge and move the debate beyond polemical debates on the status of fair value accounting.
Date of Award1 Aug 2016
Original languageEnglish
Awarding Institution
  • The University of Manchester
SupervisorChristopher Humphrey (Supervisor) & Edward Lee (Supervisor)


  • Financial instruments
  • Valuation
  • Social relational process
  • Financial services organisation
  • Financial crisis
  • Fair value accounting

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