Assessing the value relevance of fair value measurements: a South African perspective
ISSN: 1472-0701
Article publication date: 20 May 2022
Issue publication date: 12 October 2022
Abstract
Purpose
This paper aims to explore whether fair value Levels 1 and 2 measurements are more value relevant than Level 3 fair value measurements in a less-active market. Specifically, this research addresses two objectives. Firstly, it examines the value relevance of fair value measures for each disclosure level of fair value. Secondly, it assesses the impact of corporate governance on the value relevance of less observable fair value disclosures (Levels 2 and 3).
Design/methodology/approach
Drawing insights from agency theorising, this research adopts a quantitative approach (regression analysis) that investigates data from a less active financial market (South Africa).
Findings
Contrary to agency theory suppositions, the results show that investors in a less active market value management inputs more than market (more transparent) information. The authors also observe that investors pay limited interest to corporate governance structures when pricing fair value measurement, implying that they rely on factors beyond corporate governance mechanisms.
Originality/value
The authors’ findings offer useful evidence to standard setters and preparers of financial information. While the International Accounting Standard Board suggests that investors value transparent financial information, the data shows that investors in less-active markets value management’s inputs more than those of the market.
Keywords
Acknowledgements
Conflict of interest: The authors of this research declare that they have no conflict of interest.Ethical approval: All procedures performed in studies involving human participants were in accordance with the ethical standards of the institutional and/or national research committee and with the 1964.Declaration of Helsinki and its later amendments or comparable ethical standards.Animal rights statement: This study does not contain any studies with animals performed by any of the authors.Informed consent: This study relied on publicly available data.
Citation
Matsane, A., Nakpodia, F. and Areneke, G. (2022), "Assessing the value relevance of fair value measurements: a South African perspective", Corporate Governance, Vol. 22 No. 7, pp. 1405-1424. https://doi.org/10.1108/CG-07-2021-0255
Publisher
:Emerald Publishing Limited
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