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  • Fiechter_Novotny-Farkas (2016) RAST_accepted

    Rights statement: The final publication is available at Springer via http://dx.doi.org/10.1007/s11142-016-9378-7

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The impact of the institutional environment on the value relevance of fair values

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The impact of the institutional environment on the value relevance of fair values. / Fiechter, Peter; Novotny-Farkas, Zoltan.

In: Review of Accounting Studies, Vol. 22, No. 1, 03.2017, p. 392-429.

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Fiechter, Peter ; Novotny-Farkas, Zoltan. / The impact of the institutional environment on the value relevance of fair values. In: Review of Accounting Studies. 2017 ; Vol. 22, No. 1. pp. 392-429.

Bibtex

@article{0de0a74cdf8a4018879c66aeade42d27,
title = "The impact of the institutional environment on the value relevance of fair values",
abstract = "Most prior studies attribute valuation discounts on certain fair valued assets to measurement error or bias. We argue that institutional differences across countries (e.g., information environment or market sophistication) affect investors{\textquoteright} ability to process and impound fair value information in their valuation. We predict that the impact of the institutional environment on value relevance is particularly pronounced for reported fair values of assets designated at fair value through profit or loss (hereafter, “FVO assets”), for which investor experience is lowest and complexity is highest. Using a global sample of IFRS banks, we find that FVO assets are generally less value relevant than held-for-trading assets (HFT) and available-for-sale assets (AFS). By partitioning countries into market- and bank-based economies to proxy for institutional differences, we find that the valuation discount on FVO assets is more pronounced in bank-based economies. Additional tests suggest that this valuation discount is attenuated by a richer firm-level information environment and the presence of institutional investors with fair value experience.",
keywords = "Fair value accounting, International financial reporting standards (IFRS), Value relevance, Institutional accounting, Information environment",
author = "Peter Fiechter and Zoltan Novotny-Farkas",
note = "The final publication is available at Springer via http://dx.doi.org/10.1007/s11142-016-9378-7",
year = "2017",
month = mar,
doi = "10.1007/s11142-016-9378-7",
language = "English",
volume = "22",
pages = "392--429",
journal = "Review of Accounting Studies",
issn = "1380-6653",
publisher = "Springer New York",
number = "1",

}

RIS

TY - JOUR

T1 - The impact of the institutional environment on the value relevance of fair values

AU - Fiechter, Peter

AU - Novotny-Farkas, Zoltan

N1 - The final publication is available at Springer via http://dx.doi.org/10.1007/s11142-016-9378-7

PY - 2017/3

Y1 - 2017/3

N2 - Most prior studies attribute valuation discounts on certain fair valued assets to measurement error or bias. We argue that institutional differences across countries (e.g., information environment or market sophistication) affect investors’ ability to process and impound fair value information in their valuation. We predict that the impact of the institutional environment on value relevance is particularly pronounced for reported fair values of assets designated at fair value through profit or loss (hereafter, “FVO assets”), for which investor experience is lowest and complexity is highest. Using a global sample of IFRS banks, we find that FVO assets are generally less value relevant than held-for-trading assets (HFT) and available-for-sale assets (AFS). By partitioning countries into market- and bank-based economies to proxy for institutional differences, we find that the valuation discount on FVO assets is more pronounced in bank-based economies. Additional tests suggest that this valuation discount is attenuated by a richer firm-level information environment and the presence of institutional investors with fair value experience.

AB - Most prior studies attribute valuation discounts on certain fair valued assets to measurement error or bias. We argue that institutional differences across countries (e.g., information environment or market sophistication) affect investors’ ability to process and impound fair value information in their valuation. We predict that the impact of the institutional environment on value relevance is particularly pronounced for reported fair values of assets designated at fair value through profit or loss (hereafter, “FVO assets”), for which investor experience is lowest and complexity is highest. Using a global sample of IFRS banks, we find that FVO assets are generally less value relevant than held-for-trading assets (HFT) and available-for-sale assets (AFS). By partitioning countries into market- and bank-based economies to proxy for institutional differences, we find that the valuation discount on FVO assets is more pronounced in bank-based economies. Additional tests suggest that this valuation discount is attenuated by a richer firm-level information environment and the presence of institutional investors with fair value experience.

KW - Fair value accounting

KW - International financial reporting standards (IFRS)

KW - Value relevance

KW - Institutional accounting

KW - Information environment

U2 - 10.1007/s11142-016-9378-7

DO - 10.1007/s11142-016-9378-7

M3 - Journal article

VL - 22

SP - 392

EP - 429

JO - Review of Accounting Studies

JF - Review of Accounting Studies

SN - 1380-6653

IS - 1

ER -