Empirical Study Of The Presentation And Disclosure Methods Of Fair Value Changes And The Market Response

Along with economic globalization, many new industries have risen in the capital market of China together with diversified forms of financial instruments. To meet the accounting requirements of financial instruments, China issued the new Accounting Standards for Business Enterprises in 2006, introducing fair value and the concepts of profit and loss, and reflecting the application of consolidated income concept. Afterwards, in 2009, the Ministry of Finance issued ASBE Interpretation No.3, introducing the concept of consolidated income officially and raising requirements of disclosing consolidated income items for listed companies. These measurements have demonstrated that the Ministry of Finance is putting more weight on the consolidated income information. Meanwhile, as Chinese economic environment is becoming more complicated each day, the traditional net profit is not enough to meet people's requirements for income information. Under the impact of pervasive application of financial instruments and derivative instruments, there is urgent need for an index truly reflecting financial conditions and business performance, which leads to the emergence of consolidated income. In 2014, China issued CAS No.30-- Presentation of Financial Statements, specifying the concept of consolidated income. Along with the process of Chinese fair value accounting converging to international standards, the application of fair value and prevention of financial risks have attracted public attention, and the capital market response to the application of fair value has become an important research field. Chinese capital market starts late, the market is not sound, a plenty of capital has not formed active market, market participation degree is low, and valuation techniques have fallen behind. All of these factors have led to the fact that the market influences of Chinese fair value measurement are different with those of western countries. Under the background of new accounting standards, the thesis studies the market responses along with the changes of fair value based on the differences among presentation of profit and loss, providing experimental evidence for the implementation of Chinese comprehensive concept of consolidated income.Firstly, the thesis gives an overview about foreign and domestic researches on fair value normalization, fair value correlation and presentation correlation. Then, it gives definition of fair value, and includes characteristics and property of fair value in the analysis of fair value variation. Air value could bring influences on the market as demonstrated in financial statements. Based on such theoretical foundations as efficient market hypothesis, concept of information and measurement, decision usefulness view, and function lock hypothesis, the thesis studies the market responses caused by fair value presentation forms. Based on the above mentioned theoretical foundation, the event study approach is adopted and market model is utilized to conduct empirical researches. Taking the annual reports of 2007-2014 Shanghai A-share listed companies as the sample data, and earning announcement data as the event date, the thesis conducts empirical analysis on fair value profit and loss and stock return as for Estimation Window and Event Window to study market responses caused by different presentations of fair value. Finally, according to the empirical results in this paper, puts forward relevant policy Suggestions.The research results show that as fair value is demonstrated in profit statement, profit and loss of fair value are significantly correlated with stock market excessive response; as profit and loss of fair value are represented in equity statement, there is not enough stock market response; as profit and loss of fair value are demonstrated in both profit statement and equity statement, the stock market has full response to the information derived from fair value.The innovation points of the paper are as follows: firstly, it is found through organizing the relevant literatures in China that, the literatures of most scholars have studied from the angle of value relevance, but few of them conducted researches from the angle of market response. This paper studies the differences existing in the market response degrees brought by the variations and gains and losses in fair values listed in different reports, and it verifies that there is functional fixation phenomenon in Chinese investors when they pay attention to information. Secondly, with the introduction of consolidated income view into accounting criteria as the background, the paper studies the fluctuation of stock prices caused by the differences of presentation and disclosure positions of unrealized gains or losses brought by the fair value variations of financial assets. The existing literatures only study the market response when the fair value variations and gains and losses are presented and disclosed in the certain position, while this paper extends the research to the market response of fair value variations and gains and losses in different presentation and disclosure positions.The insufficiencies of the thesis are as follows: firstly, the thesis mainly takes non-financial industries of Shanghai A-share companies as the research objects. As the non-financial industries of Shanghai A-share companies possess few samples of financial assets available for sale, and the profit and loss of fair value of these assets are gathered manually through consulting annual reports, the accuracy of the research results may be influenced by the subjectivity. Secondly, the thesis only studies profit and loss of fair value of tradable financial assets and financial assets available for sale of non-financial industries, and there is big difference in asset structures of different industries, therefore, the research conclusions may have limitations.