The effect of Statement of Financial Accounting Standards No. 157 Fair Value Measurements on analysts’ information environment

Barron, Orie E.; Chung, Sung Gon; Yong, Kevin Ow

doi:10.1016/j.jaccpubpol.2016.04.001

Cited by 24 publications

(18 citation statements)

References 29 publications

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“…They also find that these increased disclosures are mostly useful for Level 3 securities. Barron, Chung and Yong (2016) find that analysts use the increased information available in ASC-820 Level 3 disclosures, resulting in a reduced uncertainty about their future forecasts.…”

Section: Introductionmentioning

confidence: 93%

“…This result may be caused by Level 3's higher degrees of information asymmetry Effects of fair value on discounts and premia (higher bid-ask spreads and betas) (Riedl and Serafiem, 2011). Barron et al (2016) find that the disclosures associated to Level 3 securities are useful to analysts, while Chung et al (2017) document increased voluntary disclosures by firms with more opaque securities. In sum, these research findings indicate that investors do not easily accept managerial discretion in fair valuations, especially when information asymmetry is a cause for concern.…”

Section: Introductionmentioning

confidence: 95%

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Fair value's effects on closed-end funds' discounts and premia: is level 3 the sole perpetrator?

Fortin

Hammami

Magnan

2020

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PurposeThis study examines the long-term link between fair valuation uncertainty and discounts/premia in closed-end funds. This study argues that, in exploring the close-end funds puzzle, prior research generally omits to consider the uncertainty surrounding the measurement of funds' financial disclosure, as reflected in the fair value hierarchy, when investment specialty differs across funds.Design/methodology/approachRegressions were employed to explore how the fair value hierarchy affects closed-end funds' discounts/premia when investment specialty differs. The authors also examine the effects pre- and post-2012 to explore if that relationship changes due to the additional disclosure requirements enacted at the end of 2011.FindingsThe authors find that the three levels of the fair value hierarchy have effects that vary according to a fund's specialty. For equity specialized funds, Level 3 significantly increases discounts and decreases premia, suggesting the impact of valuation uncertainty that underlies Level 3 estimates; this relationship disappears (decreases in severity) for premia (discount) experiencing funds post-2012. In contrast, Level 1 and Level 2 do not have any significant effect on discounts or premia except that post-2012, Level 2 begins to display discount decreasing effects. For bond specialized funds, no significant association was noted between premia and any of the fair value levels except that post-2012, Level 3 begins to display premium increasing effects. However, results are different for discounts. The authors note that Level 1 valuations significantly increase discounts, but only post-2012; Level 2 valuations significantly decrease discounts (pre- and post-2012), consistent with such estimates incorporating unique and relevant information; and Level 3 valuations do not have a significant effect on discounts.Originality/valueThe results of this study revisit prior evidence and indicate that results about the effects of fair value measurement and the closed-end funds' puzzle are sensitive to the period length being considered and the investment specialty of the fund. The authors also note that additional disclosure regarding Level 3 valuation inputs decreases market concern for valuation uncertainty and increases the liquidity benefits of investing in Level 3 carrying funds.

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Section: Introductionmentioning

confidence: 93%

Section: Introductionmentioning

confidence: 95%

Fair value's effects on closed-end funds' discounts and premia: is level 3 the sole perpetrator?

Fortin

Hammami

Magnan

2020

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“…Song et al (2010) and Riedl and Serafeim (2011) were the early studies that investigate the effect of different fair value levels on market pricing and information risk of assets respectively whereas Goh et al (2015) and Chung et al 2017provide further cross sectional and longitudinal studies that build upon the earlier studies. There have also been studies that examine how the fair value hierarchy measurements affect analysts in interpreting reported fair values in the financial statements [2,26].…”

Section: Fair Value Hierarchymentioning

confidence: 99%

Differences in the Reliability of Fair Value Hierarchy Measurements: A Cross-Country Study

Lim¹,

Pan²,

Yong³

2020

JFA

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Prior research suggests there are significant differences in how investors perceive the reliability of fair values. An unaddressed question in this stream of research is whether crosscountry differences in institutional factors can mediate differences in reliability for the fair value hierarchy measurements. We contribute to the research on fair value accounting by examining the impact of institutional factors toward the perceived reliability of fair value measurements in an international context. Based on an international sample of banks across twenty different countries, we find that the probability of crash risk is lower among countries with better financial development infrastructure, greater level of trust, tighter security regulations and higher level of disclosure requirements. These results apply to Level 1 assets but not to Level 2 and Level 3 assets. We also document that these crosscountry factors improve the trading volume of our sample banks. Our study provides early evidence suggesting that fair value measurements across the fair value hierarchy are impacted by a country's institutional background and financial development as well as the extent of its securities regulation and disclosure level. Our study suggests that there are ongoing concerns toward opaque fair values which are not fully eliminated by institutional differences. In addition, these differences matter in influencing investor willingness to trade in these stocks.

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“…Rather, it required public companies, and more specifically banks, to disclose both quantitative and qualitative information regarding the valuation techniques used to price financial instruments (FASB, 2011). Although it is well established that for public firms, new accounting disclosure requirements provides useful information to investors and reduces uncertainty regarding future's earnings ( Ayres, et al, 2017;Barron, et al, 2016), more research has to be done to establish this correlation for financial firms, and banks in particular (Ayres, et al, 2017). A recent trend in the literature highlights the recognition by regulators of the association between fair value measurements of assets and liabilities, and banks' stability (e.g.…”

Section: Introductionmentioning

confidence: 99%

On Post-Crisis Banks’ Fair Value Measurement Disclosure

Annabi¹,

Reuben²

2020

JRAS

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In this paper, we study the interplay between the popularity of valuation techniques adopted by the banks, the banks' perception of the broader risk environment, and their relative performance. In examining this relationship, we rely on the performativity theory as it applies to the fields of accounting and economic sociology. Our data consists in newly disclosed accounting information collected from banks'10-K and 20-F reports from 2012 to 2015. We use four key ingredients in our model: (1) the banks' return on equity as a proxy for performance; (2) the range of unobservable inputs as a proxy for the banks' risk assessment; (3) the intensity of use of valuation techniques, as a proxy for the popularity of these techniques; (4) valuation technique as market devices in the performative process. The regression results suggest that that the intensity of use of valuation techniques mediates the performative process between valuation techniques and banks' performance.

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The effect of Statement of Financial Accounting Standards No. 157 Fair Value Measurements on analysts’ information environment

Cited by 24 publications

References 29 publications

Fair value's effects on closed-end funds' discounts and premia: is level 3 the sole perpetrator?

Fair value's effects on closed-end funds' discounts and premia: is level 3 the sole perpetrator?

Differences in the Reliability of Fair Value Hierarchy Measurements: A Cross-Country Study

On Post-Crisis Banks’ Fair Value Measurement Disclosure

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