Publication Type

Journal Article

Version

publishedVersion

Publication Date

8-2020

Abstract

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 cross-country 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 cross-country 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.

Keywords

Fair Value Accounting, Institutional Factors, Reliability

Discipline

Accounting | Corporate Finance | Portfolio and Security Analysis

Research Areas

Accounting Information System

Publication

Journal of Finance and Accounting

Volume

8

Issue

4

First Page

199

Last Page

207

ISSN

2330-7331

Embargo Period

3-28-2021

Additional URL

https://doi.org/10.11648/j.jfa.20200804.15

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