Research On Value Relevance Of Fair Value Hierarchy Information

On Jan 26,2014, the Ministry of Finance released "Accounting Standard for Business Enterprises No.39-Fair Value Measurement" to regulate the measurement and disclosure of fair value, which was implemented since July 1,2014. Under this general background, this paper studies the value relevance of fair value information.The development of fair value concept in China’s accounting standards experienced four stages:Enabled-Cautious application-Spreading use-Use under regulation. Alongside this development, the information of fair value measurement has be enriched gradually, more and more listed companies disclosed the fair value hierarchy information, assets and liabilities using fair value measurement increased as well."Fair Value Measurements" criterion requires companies to categorize the inputs to measure fair value into three levels, use Level 1 inputs first, then Level 2 inputs, finally use Level 3 inputs. This paper attempts to examine the value relevance of Fair Value Hierarchy information. Taking China’s A-share listed banks as the object of study, using the modified model of Song et al. (2010), this paper implements the research.Meanwhile, according to "Fair Value Measurements" criterion, when relevant observable inputs are impossible or impractical to be obtained due to little or no market activity for the asset or liability, Level 3 inputs (i.e. unobservable inputs) shall be used. Under this situation, adjustments of fair value hierarchy are needed. This paper attempts to examine the value relevance of Fair Value Hierarchy Transfer information. Taking China’s A-share listed banks as the object of study, this paper compares the value relevance of fair value assets and liabilities between the banks that make transfers and banks that make no transfers and determines whether the value relevance has a difference.The empirical results indicate that the fair value hierarchy information has value relevance, and the value relevance of Level 1, Level 2 and Level 3 assets reduces level by level, but the results of fair value liabilities vary from initial assumptions and more samples are needed for further examinations. At the same time, the results indicate that the information of adjustment of fair value hierarchy has value relevance, and there is incremental value relevance on level 2 assets, but for the few samples of companies making adjustment, further examinations are need on other levels.