The Value Relevance of Fair Value Financial Assets During and After the 2008 Financial Crisis: Evidence from the Banking Industry
Isho Tama-Sweet, Liyin Zhang

Statement of Financial Accounting Standard 157 defines a hierarchy of three levels for reporting the fair of financial assets. In this paper we examine value relevance of the three levels of fair value assets and of nonfair value assets during the financial crisis of 2008-2009 and compare the results to the value relevance during the normal economic period of 2012-2013. Using quarterly data from the banking industry we find that, first, although both fair value disclosure and non-fair value disclosure provide investors with decision-related information, the value relevance of fair value assets is slightly greater than value relevance of non-fair value assets, and this difference is larger during recession period. Second, the value relevance of Level 3 financial assets, which are computed using the greatest amount of management discretion, is lower than the value relevance of Level 1 and Level 2 financial assets, and lower than the value relevance of non-financial assets. This result is true in the recession period and the normal economic period. Finally, corporate governance appears to have a positive impact on bank stock prices, and fair value disclosure is more useful for firms with weak corporate governance.

Full Text: PDF     DOI: 10.15640/jfbm.v3n1a2