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The Influence on the Value-relevance of Fair Value

Author: GengDongMei
Tutor: SongHao
School: Southwestern University of Finance and Economics
Course: Accounting
Keywords: Fair value Value relevance New Accounting Standards Subprime mortgage crisis
CLC: F832.3;F224
Type: Master's thesis
Year: 2010
Downloads: 656
Quote: 1
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Abstract

At present, the decision-making correlation has become an important theoretical principles for the formulation of national accounting standards, that provide accounting information should be relevant to the needs of users of economic decision-making and financial and accounting reports. Associated with the decision-making phase-contact measurement is based on fair value, especially since the 1990s, a large number of development of financial derivatives, the fair value measurement in some developed countries, as the representative of the United States caused a wide-ranging discussion . Supporters argue that fair value accounting allows financial regulatory agencies and other users of financial statements earlier informed of the financial difficulties faced by financial institutions. Since then, the community began to conduct in-depth research about fair value measurement and be reflected in the accounting principles in the United States. Later, after the continuous modification and improvement, the Financial Accounting Standards Board (FASB) officially released in September 2006 the Financial Accounting Standards No. 157 - Fair value measurement at home and abroad, which set off a wave study the fair value of whirlwind. February 15, 2006, the Ministry of Finance issued a new corporate accounting standards system, the provisions of the purposes of the first in the range of listed companies since January 1, 2007, and encourage other companies to perform. In this new accounting standards issued by the biggest bright spot is the introduction of fair value measurements. In the Ministry of Finance issued new accounting standards, fair value is defined as follows: measured at fair value, assets and liabilities in accordance with the arm's length transaction, familiar with the situation of the parties to the transaction voluntarily measured at the amount of an asset could be exchanged, or a liability settled. After the promulgation of the new accounting standards, to receive widespread attention as one of the biggest highlight of the fair value of its use, regardless of the sector of accounting theory and practice, or developed in the accounting standards with the banking industry and its regulatory bodies, have caused a heated debate. Of all walks of life, however, the large scale introduction of the fair value of the new standards is still hot when measured at fair value just listed companies in China began to implement, in March 2007, New Century Financial declared bankrupt, the subprime crisis erupted in the United States , followed by sweeping the globe, in this round of financial crisis, the accounting treatment is accused of being a true and quickly reflect the financial situation of listed companies, while, from all walks of life have accused the fair value measurement of the financial crisis accomplice, was pointed out that even should be re-measured in terms of historical cost instead of fair value. Situation of our country, whether measured at fair value for listed companies in China has just been implemented and should be re-using historical cost to measure it? Measured in terms of historical cost or whether it is more advantageous than the fair value measurement it? We listed banks in China, for example normative and empirical testing method of combining expand fair value, and provide empirical support for the fair value measurement is to adapt to the application of the status quo of China's financial sector, which is measured at fair value in other areas of adaptive play serve as a stimulus. Specifically, this study include the following six parts: Part I: introduction, which in this part introduces the background of this study, the main contents of the study, the significance of the study, research methods and ideas, as well as the study contribution and deficiencies. Firstly, is mainly based on the new accounting standards have been implemented in China's listed companies for nearly three years by the U.S. subprime mortgage crisis triggering a global financial crisis has not completely subsided, measured at fair value in the financial crisis, blamed for the financial crisis, an accomplice of such a study in the economic context. In this paper, the data of China's listed banks measured at fair value as a sample of the empirical research, and then discuss the impact of accounting information of listed banks in China. Part II: theoretical analysis Firstly, the theoretical basis of fair value measurements are analyzed in this section. Mainly to illustrate the theoretical basis of the fair value of these four aspects of the property rights theory, the theory of modern accounting objectives, value theory and measurement theory. Second, the article describes the meaning of the fair value on the market from all walks of life under the definition of fair value, the author of this article on the fair value is defined: the fair value is in the body of the report transaction between market participants familiar with the situation in an orderly transaction, transactions or no relationship between the acceptable price of an asset or the price paid for the transfer of debt. The theoretical analysis Finally, this paper also describes the relationship between the fair value and other measurement attributes. Part III: at home and abroad on this part of the review of the literature of the fair value of research at home and abroad on the fair value of theoretical and empirical research brief review. International academic literature focuses on the fair value and trying to verify whether the fair value is useful to investors from the capital market evidence. The typical research topic investigate the recognition and disclosure of fair value is related to the investment decisions of investors, as well as whether the incremental information content. Judging from the domestic literature review of research on the related fair value, most think that the fair value measurement is better than the historical cost, more valuable, at the same time are optimistic about our prospects for the use of fair value in normative research. Relative to normative research, the domestic empirical studies too little, before 2006, only three of the influential and representative, after 2006 gradually more empirical articles. But in retrospect, we can see that: of Deng Zhuanzhou the study for the B-share companies; Zhang Ye, Qian Hu's study is based on expanded financial listed companies in Hong Kong as a sample; Xie Rong research for new standards carried out after the implementation of the unaudited semi-annual report and quarterly reports, compared to after the annual report of the audit, the more likely presence of measurement error; Duan Jian Qin financial assets for 2006 and 2007, the Shanghai and Shenzhen A-share market. We can see from these studies, the effect on the specific implementation of the new accounting standards in 2007 after the test has yet to scholars further efforts. Part IV: study design this part of the sample selection in this article, the source of the data, assumptions made, variables and model selection. On this basis, the paper foreign scholars, and combined with China's specific national conditions, the Ohlson price model and Easton Harris revenue model as the basic model of this paper, and a corresponding change on this model, so that it more in line with the empirical research. The data for 2007 to 2008, China's A-share listed commercial banks selected for the study, the annual and semi-annual data of the sample banks during this period, the exclusion of incomplete data samples were obtained from 51 groups. Through the use of the income model (RE model) and price model to arrive at the relationship of the fair value of the EPS (earnings per share) and net income per share of adjustments and stock prices and other market factors. Part V: descriptive statistics and empirical results of this part of the specific analysis of the empirical results of the fourth part of the model, the main conclusions are: (1) an empirical test sample RE model results show that : changes in fair values ??and the stock's annual yield strong relationship, and the relationship is a positive correlation, that is, the explanatory power of the incremental changes in the fair value of the gain or loss on the annual rate of return of the stock. This shows that since January 1, 2007, China's listed banks began to implement the new accounting standards, the stock market is recognized at fair value adjusted value of accounting earnings (earnings per share), it is able to adjust the accounting gain value to make the reaction in the same direction, at fair value accounting gain adjustment corresponding to the stock market stock market price rises, so that the rate of return of the stock has increased; On the contrary, the price will fall, so that the lower rate of return of the stock . (2) an empirical test of the total sample using pricing models, through the use of China's listed banks in 2007 and 2008 data empirical results show that a more significant relationship between the change in fair value gains and losses and stock price, and our assumptions 2 match. That the financial statements prepared in accordance with the new guidelines, the use of fair value to improve the value relevance of accounting information, which indicates the existence of a significant impact on the information content of the fair value of China's listed banks net profit per share. (3) an empirical test in the total sample price model, also through the introduction of available-for-sale changes in the fair value of this variable empirical research. The empirical results show that: the increase of the market of available-for-sale financial assets fair value of listed banks in China due to the increase in net assets hold a positive attitude, so per available-for-sale financial assets Net fair value changes are positively correlated with the stock price. This is consistent with our hypothesis, confirmed from the point of view of the assets in the financial statements prepared in accordance with the new guidelines, the use of fair value significantly improve the value of the accounting information related. There is a significant impact on the information content of the fair value of the net assets per share of listed banks in China. Part VI: Conclusion and Outlook results of this study can effectively eliminate the financial crisis should continue to fair value of the concerns, the use of fair value measurement is not generating the root causes of the financial crisis. Correspondingly, the use of fair value can increase the stock price of China's listed banks better able to reflect the real value of the assets of the actual situation of China's listed banks. Here, we can further predict measured at fair value in the implementation of the listed companies in China can be more true and fair reflection of the value of the assets of listed companies in China, to contribute to the information needs to make the right decisions. However, the guidelines are just a produce accounting information, technical specifications, or there are more hidden in the practical application, therefore, the author at the end of the article with empirical results and the theoretical analysis of how to effectively implement the fair value of this measurement model put forward corresponding countermeasures and suggestions.

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CLC: > Economic > Economic planning and management > Economic calculation, economic and mathematical methods > Economic and mathematical methods
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