Main Article Content
Abstract
Implementing accounting standard 68 (PSAK 68) adopted by IFRS 13 has brought changes in reflecting the market value previously explained by earnings per share and book value. This study investigates the relevance of fair value estimates as measured by the beta coefficient in firms in the financial industry. Specifically, the study focuses on whether the hierarchy of fair value financial liabilities and assets of the firms can affect the market value. This is quantitative research using archival methods. Sampling used a purposive sampling technique with a sample of 240 firm-years. The results showed that financial assets for level 2 (inputs other than quoted prices that were observable directly or indirectly) and level 3 (unobservable inputs generated by entities) positively had value relevance. All three hierarchy fair values of financial liabilities fair value negatively had value-relevance. These results indicate that investors pay higher financial assets for levels 2 and 3 than level 1. Meanwhile, the value relevance of financial assets and liabilities, as measured by R-squared, was relevant. This suggests that investors also trust that each hierarchy's fair value affects the market value. The findings of this study have significant implications for the advancement of the clean surplus theory. The theory posits that the company's market value can be explained by the fair value of financial assets using level 2 and level 3 as well as level 1, level 2, and level 3 financial liabilities.
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References
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- Ayres, D., Huang, X. (Sharon), & Myring, M. (2017). Fair value accounting and analyst forecast accuracy. Advances in Accounting, 37, 58–70. doi:10.1016/j.adiac.2016.12.004
- Barron, O. E., Chung, S. G., & Yong, K. O. (2016). The effect of statement of financial accounting standards no. 157 fair value measurements on analysts’ information environment. Journal of Accounting and Public Policy, 35(4), 395–416.doi:10.1016/j.jaccpubpol.2016.04.001
- Barth, M. E. (2006). Including Estimates of the future in today’s financial statements. Accounting Horizons, 20(3), 271–285. doi:10.2308/acch.2006.20.3.271
- Chiqueto, F., Silva, R. L. M., Colossal, G., & Carvalho, L. N. G. (2015). Relevance of fair value of Brazilian banks securities in the financial crisis. International Journal of Emerging Markets, 10(5), 684–696. doi:10.1108/IJoEM-11-2012-0150
- Chung, S. G., Goh, B. W., Ng, J., & Yong, K. O. (2017). Voluntary fair value disclosures beyond SFAS 157’s three-level estimates. Review of Accounting Studies, 22(1), 430–468. doi:10.2139/ssrn.1335848
- Du, H., Li, S. F., & Xu, R. Z. (2014). Adjustment of valuation inputs and its effect on value relevance of fair value measurement. Research in Accounting Regulation, 26(1), 54–66.doi:10.1016/j.racreg.2014.02.005
- Fazzari, S. M., Hubbard, R. G., C. Petersen, B., Blinder, A. S., & Poterba, J. M. (1988). Financing constraints and corporate investment. Brooking Papers on Economic Activity, 1988(1), 141–206. Retrieved from https://www.researchgate.net/publication/5190362_Financing_Constraints_and_Corporate_Investment
- Fiechter, P., & Novotny-Farkas, Z. (2017). The impact of the institutional environment on the value relevance of fair values. Review of Accounting Studies, 22(1), 392–429. doi:10.1007/s11142-016-9378-7
- Filip, A., Hammami, A., Huang, Z., Jeny, A., Magnan, M., & Moldovan, R. (2021a). Convergence in motion: a review of fair value levels’ relevance. Accounting in Europe, 18(3), 275–294. https://doi.org/10.1080/17449480.2021.1912370
- Filip, A., Hammami, A., Huang, Z., Jeny, A., Magnan, M., & Moldovan, R. (2021b). The value relevance of fair value levels: time trends under IFRS and U.S. GAAP. Accounting in Europe, 18(2), 196–217. https://doi.org/10.1080/17449480.2021.1900581
- Fortin, S., Hammami, A., & Magnan, M. (2021). Re-exploring Fair value accounting and value relevance: an examination of underlying securities. Abacus, 57(2), 220–250. https://doi.org/10.1111/abac.12186
- Goh, B. W., Yong, K. K. O., Li, D., & Ng, J. (2015). Market pricing of banks’ fair value assets reported under SFAS 157 since the 2008 financial crisis. Journal of Accounting and Public Policy, 34(2), 129–145. Retrieved from https://ssrn.com/abstract=2432912
- Goh, C., Lim, C. Y. L., Ng, J., Pan, G., & Yong, K. O. (2021). Trust in fair value accounting: evidence from the field. 20(3), 21–42. https://doi.org/10.2308/jiar-2021-034
- Hameed, A. J., Shareef, A. S., & Shaban, S. I. (2022). Effect of fair value based on IFRS 13 on the qualitative characteristics of accounting information: an exploratory study in the Iraqi environment. Journal of Cases on Information Technology, 24(2), 1–12. https://doi.org/10.4018/JCIT.20220401.oa5
- Hsu, A. W.-H., Wu, G. S.-H., & Sbaraglia, A. (2020). Predicting Future performance using fair value versus historical cost: evidence from investment property. NTU Management Review, 30(2), 311–334. https://doi.org/10.6226/NTUMR.202008_30(2).0008
- Hsu, P. H., & Lin, Y. R. (2016). Fair value accounting and earnings management. Eurasian Journal of Business and Management, 4(2), 41–54. doi:10.15604/ejbm.2016.04.02.004
- Huang, H. W., Dao, M., & Sun, W. C. (2017). The timeliness of financial reporting and fair values: evidence from U.S. banks. Review of Pacific Basin Financial Markets and Policies, 20(1).doi:10.1142/S0219091517500060
- IASB. (2011). IFRS 13, Fair Value Measurement. IFRS Foundation Publications Department. UK-IASB, London.
- Jing, L., & Kyu, P. (2010). The role of fair value accounting for investment in securities: evidences from the Chinese stock exchanged market. iBusiness, 02(04), 409–414. doi:10.4236/ib.2010.24054
- Khurana, I. K., & Kim, M. S. (2003). Relative value relevance of historical cost vs. fair value: evidence from bank holding companies. Journal of Accounting and Public Policy, 22(1), 19–42. doi:10.1016/S0278-4254(02)00084-4
- Koonce, L., Nelson, K. K., & Shakespeare, C. M. (2011). Judging the relevance of fair value for financial instruments. Accounting Review, 86(6), 2075–2098. doi:10.2308/accr-10134
- Laux, C., & Leuz, C. (2009). The crisis of fair-value accounting: Making sense of the recent debate. Accounting, Organizations and Society, 34(6–7), 826–834 doi:10.1016/j.aos.2009.04.003
- Lu, H. Y., & Mande, V. (2014). Does disaggregation of fair value information increase the value relevance of the fair value hierarchy? Research in Accounting Regulation, 26(1), 90–97. https://doi.org/10.1016/j.racreg.2014.02.009
- Maksy, M. M. (2016). Is free cash flow value relevant? the case of the information technology industry. Journal of Accounting and Finance, 16(5), 73–81. Retrieved from http://www.na-businesspress.com/JAF/MaksyMM_Web16_5_.pdf
- Mechelli, A., & Cimini, R. (2019). Corporate governance, legal systems and value relevance of fair value estimates. Empirical evidence from the EU banking sector. Revista Espanola de Financiacion y Contabilidad, 48(2), 203–223. doi:10.1080/02102412.2018.1471309
- Mostafa, W. (2017). The impact of earnings management on the value relevance of earnings empirical evidence from Egypt. Managerial Auditing Journal, 32(1), 50–74. doi:10.1108/MAJ-01-2016-1304
- Narullia, D., Subekti, I., Azizah, N., & Purnamasari, F. (2019). Value Relevance of Corporate Social Responsibility Disclosure on Public Companies in ASEAN Countries. KnE Social Sciences, 3(11), 475. doi:10.18502/kss.v3i11.4027
- Ohlson, J. A. (1995). Earnings, Book Values, and Dividends in Equity Valuation*. https://doi.org/10.1111/J.1911-3846.1995.TB00461.X
- Palea, V. (2022). Accounting for sustainable finance: does fair value measurement fit for long-term equity investments? Meditari Accountancy Research, 30(1), 22–38. https://doi.org/10.1108/MEDAR-07-2020-0965
- Paoloni, M., Paolucci, G., & Menicucci, E. (2017). Fair value accounting and earnings quality (EQ) in banking sector: evidence from Europe. African Journal of Business Management, 11(20), 597–607. doi:10.5897/AJBM2017.8407
- Pathirawasam, C. (2013). The value relevance of earnings and book value: the importance of ownership concentration and firm size. Journal of Competitiveness, 5(2), 98–107. doi:10.7441/joc.2013.02.07
- Qu, X., & Zhang, G. (2015). Value-relevance of earnings and book value over the institutional transition in China: the suitability of fair value accounting in this emerging market. International Journal of Accounting, 50(2), 195–223. doi:10.1016/j.intacc.2013.01.009
- Rahman, A. F. (2011). Masalah Keagenan aliran kas bebas, manajemen laba dan relevansi nilai informasi akuntansi. Ekuitas, 15(2), 232–246. doi:10.24034/j25485024.y2011.v15.i2.2290
- Rahman, A. F., & Mohd-Saleh, N. (2008). The effect of free cash flow agency problem on the value relevance of earnings and book value. Journal of Financing Reporting & Accounting, 75–90. doi:10.1108/19852510880000636
- Razak, M. H. Y., & Stainbank, L. J. (2018). Fair value accounting by listed South African companies in the non-financial sector. South African Journal of Accounting Research, 32(1), 1–24. doi :10.1080/10291954.2017.1342348
- Scott, W. R. (2015). Financial Accounting Theory (Seventh). Pearson Toronto. Retrieved from https://universitytime.home.blog/wp-content/uploads/2020/08/afm-401-scott-financial-accounting-theory-7ed.pdf
- Seddighi, R., Ghasemi, A., & Momenzadeh, M. M. (2021). The effect of using fair value approach on performance prediction in investment companies. Iranian Journal of Finance, 5(2), 1–20. https://doi.org/10.30699/ijf.2021.126884
- Sekaran, U., & Bougie, R. (2017). Research Methods for business: A skill building approach (Sixth). Wiley.
- Siekkinen, J. (2016). Value relevance of fair values in different investor protection environments. Accounting Forum, 40(1), 1–15. doi :10.1016/j.accfor.2015.11.001
- Siekkinen, J. (2017a). Audit quality and the value relevance of fair values. In Int. J. Accounting, Auditing and Performance Evaluation, 13(3).
- Siekkinen, J. (2017b). Board characteristics and the value relevance of fair values. Journal of Management and Governance, 21(2), 435–471. doi:10.1007/s10997-016-9350-8
- Šodan, S. (2015). The impact of fair value accounting on earnings quality in eastern European countries. Procedia Economics and Finance. doi:10.1016/S2212-5671(15)01481-1
- Song, C. J., Thomas, W. B., & Yi, H. (2010). Value relevance of FAS No. 157 fair value hierarchy information and the impact of corporate governance mechanisms. Accounting Review, 85(4), 1375–1410. https://doi.org/10.2308/accr.2010.85.4.1375
- Steffen Rapp, M. (2010). Information asymmetries and the value-relevance of cash flow and accounting figures-empirical analysis and implications for managerial accounting. Problems and Perspectives in Management, 8(2), 64–75.doi :10.2139/ssrn.1555652
- Subekti, I. (2010). Earnings management, value relevance of earnings and book value of equity. Jurnal Akuntansi dan Auditing Indonesia, 14(2), 213–232.
- Xiaoqing, Z., Guo, X., Yang, C.-T., & Xiong, Y. (2012). Value relevance of financial assets’ fair values: Evidence from Chinese listed companies. African Journal of Business Management, 6(12).
- Zhang, G., & Qu, X. (2022). Fair value measurement, value relevance and economic development: Adoption evidence of China’s listed firms. Asia-Pacific Journal of Accounting and Economics, 29(4), 849–865. https://doi.org/10.1080/16081625.2020.1754252
- Zhuang, X., & Luo, Y. (2015). Relevance between the degree of industrial competition and fair value information: study on the listed companies in China. Journal of Industrial Engineering and Management, 8(3), 894–908. doi:10.3926/jiem.1513.
References
Asker, J., Farre-Mensa, J., & Ljungqvist, A. (2014). Corporate Investment and stock market listing: A puzzle? The Review of Financial Studies, 28(2), 342–390.
Ayres, D., Huang, X. (Sharon), & Myring, M. (2017). Fair value accounting and analyst forecast accuracy. Advances in Accounting, 37, 58–70. doi:10.1016/j.adiac.2016.12.004
Barron, O. E., Chung, S. G., & Yong, K. O. (2016). The effect of statement of financial accounting standards no. 157 fair value measurements on analysts’ information environment. Journal of Accounting and Public Policy, 35(4), 395–416.doi:10.1016/j.jaccpubpol.2016.04.001
Barth, M. E. (2006). Including Estimates of the future in today’s financial statements. Accounting Horizons, 20(3), 271–285. doi:10.2308/acch.2006.20.3.271
Chiqueto, F., Silva, R. L. M., Colossal, G., & Carvalho, L. N. G. (2015). Relevance of fair value of Brazilian banks securities in the financial crisis. International Journal of Emerging Markets, 10(5), 684–696. doi:10.1108/IJoEM-11-2012-0150
Chung, S. G., Goh, B. W., Ng, J., & Yong, K. O. (2017). Voluntary fair value disclosures beyond SFAS 157’s three-level estimates. Review of Accounting Studies, 22(1), 430–468. doi:10.2139/ssrn.1335848
Du, H., Li, S. F., & Xu, R. Z. (2014). Adjustment of valuation inputs and its effect on value relevance of fair value measurement. Research in Accounting Regulation, 26(1), 54–66.doi:10.1016/j.racreg.2014.02.005
Fazzari, S. M., Hubbard, R. G., C. Petersen, B., Blinder, A. S., & Poterba, J. M. (1988). Financing constraints and corporate investment. Brooking Papers on Economic Activity, 1988(1), 141–206. Retrieved from https://www.researchgate.net/publication/5190362_Financing_Constraints_and_Corporate_Investment
Fiechter, P., & Novotny-Farkas, Z. (2017). The impact of the institutional environment on the value relevance of fair values. Review of Accounting Studies, 22(1), 392–429. doi:10.1007/s11142-016-9378-7
Filip, A., Hammami, A., Huang, Z., Jeny, A., Magnan, M., & Moldovan, R. (2021a). Convergence in motion: a review of fair value levels’ relevance. Accounting in Europe, 18(3), 275–294. https://doi.org/10.1080/17449480.2021.1912370
Filip, A., Hammami, A., Huang, Z., Jeny, A., Magnan, M., & Moldovan, R. (2021b). The value relevance of fair value levels: time trends under IFRS and U.S. GAAP. Accounting in Europe, 18(2), 196–217. https://doi.org/10.1080/17449480.2021.1900581
Fortin, S., Hammami, A., & Magnan, M. (2021). Re-exploring Fair value accounting and value relevance: an examination of underlying securities. Abacus, 57(2), 220–250. https://doi.org/10.1111/abac.12186
Goh, B. W., Yong, K. K. O., Li, D., & Ng, J. (2015). Market pricing of banks’ fair value assets reported under SFAS 157 since the 2008 financial crisis. Journal of Accounting and Public Policy, 34(2), 129–145. Retrieved from https://ssrn.com/abstract=2432912
Goh, C., Lim, C. Y. L., Ng, J., Pan, G., & Yong, K. O. (2021). Trust in fair value accounting: evidence from the field. 20(3), 21–42. https://doi.org/10.2308/jiar-2021-034
Hameed, A. J., Shareef, A. S., & Shaban, S. I. (2022). Effect of fair value based on IFRS 13 on the qualitative characteristics of accounting information: an exploratory study in the Iraqi environment. Journal of Cases on Information Technology, 24(2), 1–12. https://doi.org/10.4018/JCIT.20220401.oa5
Hsu, A. W.-H., Wu, G. S.-H., & Sbaraglia, A. (2020). Predicting Future performance using fair value versus historical cost: evidence from investment property. NTU Management Review, 30(2), 311–334. https://doi.org/10.6226/NTUMR.202008_30(2).0008
Hsu, P. H., & Lin, Y. R. (2016). Fair value accounting and earnings management. Eurasian Journal of Business and Management, 4(2), 41–54. doi:10.15604/ejbm.2016.04.02.004
Huang, H. W., Dao, M., & Sun, W. C. (2017). The timeliness of financial reporting and fair values: evidence from U.S. banks. Review of Pacific Basin Financial Markets and Policies, 20(1).doi:10.1142/S0219091517500060
IASB. (2011). IFRS 13, Fair Value Measurement. IFRS Foundation Publications Department. UK-IASB, London.
Jing, L., & Kyu, P. (2010). The role of fair value accounting for investment in securities: evidences from the Chinese stock exchanged market. iBusiness, 02(04), 409–414. doi:10.4236/ib.2010.24054
Khurana, I. K., & Kim, M. S. (2003). Relative value relevance of historical cost vs. fair value: evidence from bank holding companies. Journal of Accounting and Public Policy, 22(1), 19–42. doi:10.1016/S0278-4254(02)00084-4
Koonce, L., Nelson, K. K., & Shakespeare, C. M. (2011). Judging the relevance of fair value for financial instruments. Accounting Review, 86(6), 2075–2098. doi:10.2308/accr-10134
Laux, C., & Leuz, C. (2009). The crisis of fair-value accounting: Making sense of the recent debate. Accounting, Organizations and Society, 34(6–7), 826–834 doi:10.1016/j.aos.2009.04.003
Lu, H. Y., & Mande, V. (2014). Does disaggregation of fair value information increase the value relevance of the fair value hierarchy? Research in Accounting Regulation, 26(1), 90–97. https://doi.org/10.1016/j.racreg.2014.02.009
Maksy, M. M. (2016). Is free cash flow value relevant? the case of the information technology industry. Journal of Accounting and Finance, 16(5), 73–81. Retrieved from http://www.na-businesspress.com/JAF/MaksyMM_Web16_5_.pdf
Mechelli, A., & Cimini, R. (2019). Corporate governance, legal systems and value relevance of fair value estimates. Empirical evidence from the EU banking sector. Revista Espanola de Financiacion y Contabilidad, 48(2), 203–223. doi:10.1080/02102412.2018.1471309
Mostafa, W. (2017). The impact of earnings management on the value relevance of earnings empirical evidence from Egypt. Managerial Auditing Journal, 32(1), 50–74. doi:10.1108/MAJ-01-2016-1304
Narullia, D., Subekti, I., Azizah, N., & Purnamasari, F. (2019). Value Relevance of Corporate Social Responsibility Disclosure on Public Companies in ASEAN Countries. KnE Social Sciences, 3(11), 475. doi:10.18502/kss.v3i11.4027
Ohlson, J. A. (1995). Earnings, Book Values, and Dividends in Equity Valuation*. https://doi.org/10.1111/J.1911-3846.1995.TB00461.X
Palea, V. (2022). Accounting for sustainable finance: does fair value measurement fit for long-term equity investments? Meditari Accountancy Research, 30(1), 22–38. https://doi.org/10.1108/MEDAR-07-2020-0965
Paoloni, M., Paolucci, G., & Menicucci, E. (2017). Fair value accounting and earnings quality (EQ) in banking sector: evidence from Europe. African Journal of Business Management, 11(20), 597–607. doi:10.5897/AJBM2017.8407
Pathirawasam, C. (2013). The value relevance of earnings and book value: the importance of ownership concentration and firm size. Journal of Competitiveness, 5(2), 98–107. doi:10.7441/joc.2013.02.07
Qu, X., & Zhang, G. (2015). Value-relevance of earnings and book value over the institutional transition in China: the suitability of fair value accounting in this emerging market. International Journal of Accounting, 50(2), 195–223. doi:10.1016/j.intacc.2013.01.009
Rahman, A. F. (2011). Masalah Keagenan aliran kas bebas, manajemen laba dan relevansi nilai informasi akuntansi. Ekuitas, 15(2), 232–246. doi:10.24034/j25485024.y2011.v15.i2.2290
Rahman, A. F., & Mohd-Saleh, N. (2008). The effect of free cash flow agency problem on the value relevance of earnings and book value. Journal of Financing Reporting & Accounting, 75–90. doi:10.1108/19852510880000636
Razak, M. H. Y., & Stainbank, L. J. (2018). Fair value accounting by listed South African companies in the non-financial sector. South African Journal of Accounting Research, 32(1), 1–24. doi :10.1080/10291954.2017.1342348
Scott, W. R. (2015). Financial Accounting Theory (Seventh). Pearson Toronto. Retrieved from https://universitytime.home.blog/wp-content/uploads/2020/08/afm-401-scott-financial-accounting-theory-7ed.pdf
Seddighi, R., Ghasemi, A., & Momenzadeh, M. M. (2021). The effect of using fair value approach on performance prediction in investment companies. Iranian Journal of Finance, 5(2), 1–20. https://doi.org/10.30699/ijf.2021.126884
Sekaran, U., & Bougie, R. (2017). Research Methods for business: A skill building approach (Sixth). Wiley.
Siekkinen, J. (2016). Value relevance of fair values in different investor protection environments. Accounting Forum, 40(1), 1–15. doi :10.1016/j.accfor.2015.11.001
Siekkinen, J. (2017a). Audit quality and the value relevance of fair values. In Int. J. Accounting, Auditing and Performance Evaluation, 13(3).
Siekkinen, J. (2017b). Board characteristics and the value relevance of fair values. Journal of Management and Governance, 21(2), 435–471. doi:10.1007/s10997-016-9350-8
Šodan, S. (2015). The impact of fair value accounting on earnings quality in eastern European countries. Procedia Economics and Finance. doi:10.1016/S2212-5671(15)01481-1
Song, C. J., Thomas, W. B., & Yi, H. (2010). Value relevance of FAS No. 157 fair value hierarchy information and the impact of corporate governance mechanisms. Accounting Review, 85(4), 1375–1410. https://doi.org/10.2308/accr.2010.85.4.1375
Steffen Rapp, M. (2010). Information asymmetries and the value-relevance of cash flow and accounting figures-empirical analysis and implications for managerial accounting. Problems and Perspectives in Management, 8(2), 64–75.doi :10.2139/ssrn.1555652
Subekti, I. (2010). Earnings management, value relevance of earnings and book value of equity. Jurnal Akuntansi dan Auditing Indonesia, 14(2), 213–232.
Xiaoqing, Z., Guo, X., Yang, C.-T., & Xiong, Y. (2012). Value relevance of financial assets’ fair values: Evidence from Chinese listed companies. African Journal of Business Management, 6(12).
Zhang, G., & Qu, X. (2022). Fair value measurement, value relevance and economic development: Adoption evidence of China’s listed firms. Asia-Pacific Journal of Accounting and Economics, 29(4), 849–865. https://doi.org/10.1080/16081625.2020.1754252
Zhuang, X., & Luo, Y. (2015). Relevance between the degree of industrial competition and fair value information: study on the listed companies in China. Journal of Industrial Engineering and Management, 8(3), 894–908. doi:10.3926/jiem.1513.