The determinants of fair value measurements of banks: International evidence

Yao, Dai Fei, Percy, Majella, & Hu, Fang (2014) The determinants of fair value measurements of banks: International evidence. In 2014 AFAANZ Conference, 6-8 July 2014, Auckland, New Zealand. (Unpublished)


The purpose of this study is to investigate the accounting choice decisions of banks to employ Level 3 inputs in estimating the value of their financial assets and liabilities. Using a sample of 146 bank-year observations from 18 countries over 2009-2012, this study finds banks’ incentives to use Level 3 valuation inputs are associated with both firm-level and country-level determinants. At the firm-level, leverage, profitability (in term of net income), Tier 1 capital ratio, size and audit committee independence are associated with the percentage of Level 3 valuation inputs. At the country-level, economy development, legal region, legal enforcement and investor rights are also associated with the Level 3 classification choice. Lastly, ‘secrecy’, the proxy for culture dimensions and values, is found to be positively associated with the use of Level 3 valuation inputs. Altogether, these findings suggest that banks use the discretion available under Level 3 inputs opportunistically to avoid violating debt covenants limits, to increase earnings and manage their capital ratios. Results of this study also highlight that corporate governance quality at the firm-level (e.g. audit committee independence) and institutional features can constrain banks’ opportunistic behaviors in using the discretion available under Level 3 inputs. The results of this study have important implications for standard setters and contribute to the debate on the use of fair value accounting in an international context.

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ID Code: 95454
Item Type: Conference Paper
Refereed: No
Additional URLs:
Keywords: Fair value measurement, Fair value hierarchy, Accounting choice
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Current > Schools > School of Accountancy
Copyright Owner: Copyright 2014 [please consult the authors]
Deposited On: 09 May 2016 22:48
Last Modified: 14 May 2016 15:35

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