Fair Value Accounting at Berkshire Hathaway Inc. (A)

Jonas  Heese; Suraj  Srinivasan; Francois  Brochet; Christine   Johnson

Case | HBS Case Collection | August 2018 (Revised April 2019)

Fair Value Accounting at Berkshire Hathaway Inc. (A)

by Jonas Heese, Suraj Srinivasan, Francois Brochet and Christine Johnson

Abstract

In May 2018, Berkshire Hathaway announced an unprecedented loss of more than $1 billion for the first quarter of 2018. Warren Buffett blamed this loss on the new accounting rules for equity securities which he criticized. In the case ‘Fair Value Accounting at Berkshire Hathaway, Inc.’ students will evaluate the impact of a new rule related to the fair value accounting as it pertains to Berkshire Hathaway and Alphabet. Students will debate the topic of relevance and reliability in fair value accounting as compared to historical cost accounting and discuss the intended purposes of the balance sheet and income statement (with particular attention to net income). Students will also have a chance to review the business model of Berkshire Hathaway to debate how to measure and report the economic performance of Berkshire Hathaway.

Keywords: equity securities; FASB; Fair Value Accounting; Governing Rules, Regulations, and Reforms; Financial Services Industry;

Language: English

Format: Print

19 pages

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Citation:

Heese, Jonas, Suraj Srinivasan, Francois Brochet, and Christine Johnson. "Fair Value Accounting at Berkshire Hathaway Inc. (A)." Harvard Business School Case 119-030, August 2018. (Revised April 2019.)

Working Paper | HBS Working Paper Series | 2019

Going Digital: Implications for Firm Value and Performance

Wilbur Chen and Suraj Srinivasan

We examine the firm value and performance implications of the growing trend of non-technology (non-tech) companies adopting digital technologies such as artificial intelligence, big data, cloud computing, machine learning. For the entire universe of US public listed firms, we identify companies that are going digital using textual analysis of disclosure of digital-related words in corporate financial reports and conference calls. We first show that digital adoption by non-tech firms has dramatically grown in recent years. Non-tech digital adopters exhibit greater stock price co-movement with technology companies than with their industry peers, suggesting that the digital activities are making them similar to tech firms. The digital adopters hold more cash and are larger, younger, and less CapEx-intensive. Digital adoption is associated with higher valuation ― market-to-book ratio is higher by 7-21% than industry peers – and is higher for firms that are younger, more CapEx-intensive, exhibit higher sales growth and are in industries where digital adoption is prevalent. However, markets are slow to respond to the disclosure of digital activity. Portfolios formed on digital disclosure earn a size/book-to-market adjusted return of 25% over a 3-year horizon and generate a monthly alpha of 40 basis points. Finally, while there is no significant improvement in financial performance as measured by return-on-assets conditional on digital activities, there is a significant increase in asset turnover but also a significant decline in margins and sales growth. Managerial expertise is important for digital technology adoption, as firms with senior technology executives perform better when going digital.

Citation:

Chen, Wilbur, and Suraj Srinivasan. "Going Digital: Implications for Firm Value and Performance." Harvard Business School Working Paper, No. 19-117, May 2019. View Details

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Fair Value Accounting at Berkshire Hathaway Inc. (A)

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