YouTube como generador de su propia comunidad y cultura

The value relevance is typically measured by the statistical association between accounting information, and herein disclosed and/or recognised fair values, and market value of equity. Prior research in the US shows that disclosed and recognised fair values of financial assets and liabilities are value relevant to investors and provide incremental value relevant information relative to their historical cost (amortised cost). In specific, previous empirical findings confirm that the fair values of investment securities are indeed value relevant to investors, even for those traded in thin markets (Barth, 1994; Barth et al., 1995; Ahmed and Takeda, 1995; Nelson, 1996; Eccher et al., 1996; Barth el al., 1996; Carroll et al., 2003). Several studies show similar results for the disclosed fair value estimates of derivatives (Venkatachalam 1996; Seow and Tam, 2002). Other studies, however, report that the valuation coefficients on fair values of off-balance sheet items, including derivatives, are not statistically significant (Nelson, 1996; Eccher et al., 1996; Barth el al., 1996), which might be attributed to ambiguities in the disclosed fair values. Interestingly, Ahmed et al. (2006) find that the valuation coefficients on recognised fair values of derivatives are statistically significant compared to insignificant corresponding coefficients on disclosed derivatives. With respects to financial instruments with no established markets such as loans and long-term debt, the results are mixed (see Barth et al., 1996; Eccher et al., 1996; Nelson, 1996). For example, net loan numbers are largely based on inputs other than observable market prices; and as such their estimated fair values are expected to be less reliable.

65

Fewer studies have investigated the quality of fair value information in a non-US context. A Danish study by Bernard et al. (1995) documents some evidence of manipulating mark-to-market loan loss provisions. Interestingly, Fiechter and Novotny-Farkas (2014) report lower value relevant financial instruments designated on initial recognition at fair value through profit or loss compared to those held for trading. In a more recent study, Drago et al. (2013) find that the fair value estimates of net loans by EEA banks provide incremental value relevant information. Barth et al. (2014) document that the reconciliations from local accounting standards to IFRS related to financial instruments are value relevant to investors.

These studies support the view that fair value measures provide investors with useful information for valuation purposes. However, the value relevant and reliability of fair values vary with inputs used to estimate fair values. The requirements of fair value hierarchy disclosure in accordance with SFAS No. 157 (effective since 2007) and IFRS 7 (effective since 2009) allow researchers to evaluate the value relevance of fair values across the levels of fair value hierarchy.

Three studies investigate the value relevance of fair value hierarchy under SFAS No. 157 reported by US financial firms, namely Kolev (2009), Song et al. (2010) and Goh et al. (2015). They provide evidence that level 1 fair values, based on quoted market prices, are more value relevant and reliable than level 3 fair values, based on unobservable inputs. The valuation coefficient on level 2 fair value is higher than that on level 3 fair values, however the difference is not always significant. Accordingly, Riedl and Serafeim (2011), Liao et al. (2013) and Huang et al. (2015) show that level 3 fair values are associated with higher cost of capital and greater information asymmetry. Fiechter, and Meyer, (2010) document that managers tend to use the discretion afforded by level 3 fair values for the purpose of big bath accounting in times of financial crisis. Yet there is scant research that assesses the changes in the quality of financial reporting as a result of the enhanced disclosure requirements under IFRS 7. As far as I am aware, there is only one

66

study by Bischof (2009) that reports an improvement in the disclosure quality in both financial statements and in risk reports of European banks following IFRS 7 adoption.

It has been argued that fair value estimates of financial assets and liabilities, for which active markets do not exist, can introduce bias (management discretion) or/ and noise (measurement error), which in turn leads to lower accounting information quality (Landsman, 2007; Penman, 2007). In this context, a branch of accounting research evaluates the impact of managerial opportunism on the reliability and relevance of fair value estimates. For instance, Beaver and Venkatachalam (2003) find that the pricing coefficient on the discretionary component of net loans is negative and statistically significant. Another strand of the literature addresses the use of private information by managers for option pricing model inputs. This literature is of particular interest to the present thesis since it provides insight into the impact of managerial discretion, in terms of inputs for stock option valuation models, on the reliability of accounting information. With a great deal of similarity, the managerial discretion over the inputs of fair value estimates might affect the reliability of level 3 fair values. Aboody et al. (2006) and Bartov et al. (2007) report that managers opportunistically use the discretion inherent in SFAS 123 to understate the disclosed option expenses; and weak corporate governance is associated with higher level of stock option understatement. Yet, using a shorter sample period, Hodder et al. (2006) find that firms exercise value-increasing discretion in the valuation of stock option expenses under SFAS 123.

Prior studies show the quality of fair value information seems to vary across countries. Bischof (2009) provides empirical evidence of variation in the quality of disclosure under IFRS7 between European countries. Fiechter and Novotny-Farkas (2014) report results suggesting that bank- based economies compared to market-based economies are associated with lower value relevance of fair values, which might be explained by the lower enforcement level and higher measurement errors (or bias). Similarly, the accounting literature has also turned attention to whether stronger

67

corporate governance mechanisms can mitigate measurement bias and noise in fair value estimates. Kolev (2009) and Song et al. (2010) support this view by documenting that firms characterised by stronger corporate governance tend to have higher value relevant level 3 fair values. Verriest et al. (2013) show that strong corporate governance results in early adoption of IAS 39 in case of bad news. Bhat (2013) finds that strong corporate governance is associated with more value relevant fair value gains and losses. Huang et al. (2015) document lower positive association between level 3 fair values and firms’ cost of capital for firms with strong corporate

governance mechanisms. Thus, it can be argued that both the institutional environment and corporate governance mechanisms have an impact on the quality of fair value estimates, particularly in the absence of active markets for financial assets and liabilities under measurement.