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On August 24, 2010, Bob Herz, then chairman of the Financial Accounting Standards Board (FASB) resigned unexpectedly. Before his resignation, Herz supported a FASB proposal for applying fair value to loans and cast the deciding vote. This proposal received strong pushbacks from banks and bank regulators. Using an event study methodology, we examine whether Herz’s abrupt resignation changed the market’s expectation on whether the fair value proposal would be finalized. We find that bank investors responded positively to Herz’s resignation, especially banks that would have been affected more by the fair value requirement for loans. They also responded negatively to the initial proposal and positively to the later reversal of the proposal after Herz’s departure. Our results indicate that bank investors believed that Herz’s position on the fair value proposal is crucial to the final outcome of the proposal.
