Research On Value-Relevance Of Financial Assets' Fair Value

In 2006, China issued new accounting standards, which was concerned because of the introduction of fair value measurement. It was a remarkable moment since it's the completion of the transformation from historical cost measurement to mixed measurement. Using fair value is the choice of accounting system's objective and international convergence. From the theoretical point of view, using fair value can reflect the changing enterprise market value, improve the relevance and quality of accounting information and help the audience to make the right decisions. On the other hand, China's improving capital market provides a applicant environment for the fair value measurement.However, in many cases, it requires to adopt valuation techniques to obtain fair value, that's why many experts and scholars have doubts on the reliability of fair value, especially after the financial tsunami of 2008. One main character of fair value is "pro-cycle", which was considered not only accelerate, but also lead to the financial tsunami. Some studies believe that fair value measurement is a bad choice, while some think otherwise. Chinese Ministry of Finance supports the latter. It ponders the adopt of fair value measurement in China is cautious and reasonable, therefore it decided to keep it in the accounting standards.Which carries more weight, the harm or the good? This paper thinks it's decided by the economic consequences of fair value measurement, which can be derived by observing the market reaction to the accounting information. When it comes to modern market economy, capital market is considered a main instrument to integrate elements of resources. Therefore, stock price, as the signal of the allocative efficiency, was convinced to be the best choice to value a company. As a result, to observe the market reaction to fair-value-based accounting information is to observe the relationship between stock price and fair-value-based accounting information. Because its least controversial applying of fair value measurement, this paper using financial asset as a breakthrough point, attempted to explore the value-relevance of fair-value-based accounting information comparing to historical-cost-based one, as well as the consistence and dynamics of the value-relevance by empirical study.This paper was divided into five chapters as follows:ChapterⅠis the introduction of the research background, the purpose and significance of the study, the structure and technique of this article, as well as the contribute and the weak points.ChapterⅡis the theoretical bases. Financial assets, fair value and value-relevance were defined first. After literature review and theoretical analysis, this paper supported that fair value measurement is helpful to enhance the value-relevance of accounting information. On the other hand, fair value measurement is most suitable for financial assets. So this paper concluded that fair value of financial assets has incremental value-relevance compared to historical cost.ChapterⅢis the design of the empirical study. After theoretical analysis, this paper put forward 5 assumptions. Also, several regression model was reached on the base of Ohlson's price model and earnings pattern. Last but not least, variable was defined and explained.ChapterⅣis the empirical analysis. This paper selected Shanghai A-shared listed manufacturing companies as the research sample. Through descriptive statistics and regression analysis, some empirical results can be got:First of all, the fair value of financial assets has incremental value-relevance compared to the historical cost.Secondly, the holding gains and losses caused by the change of fair value of both trading securities and available-for-sale securities has significant value relevance, which dynamics won't be influenced by economic background.Last but not least, the holding gains and losses caused by the change of fair value of trading securities has stronger value-relevance than that of available-for-sale secutities.ChapterⅤis the suggestions. This chapter listed some recommendations for improving the relevance and quality of fair-value-based accounting information, such as setting the specific standards for fair value and comprehensive income reporting, trying to adopt double measurement in separate reporting system of financial statement and so on.The major contribution of this paper is:(1) after investigating the value-relevance of financial assets, this paper explore the value-relevance of fair-value-based accounting information comparing to historical-cost-based one, as well as the consistence and dynamics of the value-relevance by empirical study, hoping the conclusion can provide subsequent researcher some new thoughts. (2) this paper proved putting comprehensive income reporting can improve the relevance and quality of accounting information and help the audience to make the right decisions. Which means the application of comprehensive income reporting met the accounting standard maker's expection.However, due to the lack of knowledge and the constraint of objective conditions, there are still some weak points:(1) the research sample for H1 was kind of small, since there are no more available original data. (2) stock price is the most synthetic index. Therefore, to separate some particular accounting information from the stock price's multiple influencing factor is barely possible. (3) there are some discordance of the research samples among different models. Hope that subsequent research can improve on.