Review of Accounting Studies

, Volume 18, Issue 3, pp 833-858

First online:

The financial reporting of fair value based on managerial inputs versus market inputs: evidence from mortgage servicing rights

  • Jennifer AltamuroAffiliated withAccounting and MIS Department, The Ohio State University
  • , Haiwen ZhangAffiliated withAccounting and MIS Department, The Ohio State University Email author 

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This research examines whether the fair value of mortgage servicing rights (MSRs) based on managerial inputs (Level 3) better reflects the cash flow and risk characteristics of the underlying assets than the fair value of MSRs based on market inputs (Level 2). Using mortgage servicing fees as a proxy for the underlying cash flows, we find that the valuation multiples for MSRs based on Level 3 inputs are more positively associated with the persistence of future servicing fees compared with the fair value of MSRs based on Level 2 inputs. We also document that only the valuation multiples based on Level 3 fair values are negatively associated with proxies for risk factors. Our results suggest that, although unobservable inputs are subject to managerial discretions, managers can generate higher quality fair value estimates than market inputs due to their information advantage, especially when the market for the underlying asset is inactive.


Mortgage servicing rights Fair value Market inputs Managerial inputs FAS 157

JEL Classification