How does government ownership affect the relationship between fair value accounting and earnings quality?

Abstract: This thesis examines the effect government ownership has on the relationship between fair value accounting and earnings quality when “mark-to-model” techniques are used in fair value estimations. To this end we compare 36 real estate companies controlled by private interests with 32 real estate companies controlled by the state and municipal governments in Sweden. We find that the relationship between fair value accounting exposure and aggregated earnings quality is negatively affected by government ownership when unobservable inputs are used in the fair value estimation. Previous research treats government ownership simply as having a first order relationship with earnings quality. Our results indicate determinants of earnings quality can affect one another, and that these effects should be considered.