Empirical Study On Fair Value Accounting

Both Financial Accounting Standard Board (FASB) and International Accounting Standard Board (IASB) are transferring from historical cost accounting to fair value accounting in making accounting standards. It is no doubt that such a transfer has exerted a significant influence on international financial accounting theory and practice. In order to strengthen harmonization and convergence between Chinese Accounting Standards and International Financial Reporting Standards (IFRSs), Accounting Standard for Business Enterprises promulgated in 2006 by Chinese Ministry of Finance adopted fair value measurement on a large scale. Extensive application of fair value measurement has induced an intense controversy not only between academe and accounting practitioner, but also between accounting standard setters and certain supervising bodies.Under the backgound of fair value measurement coming into the general trend, this dissertation focuses on the following issues on fair value accounting based on overseas and domestic related research results. In the first part, this dissertation tries to investigate whether application of fair value measurement has impaired accounting information quality of Chinese listed companies because many people are afraid that fair value measurement could be abused to manipulate earnings. In the second part, the dissertation examines whether fair value information disclosed by listed companies is value-relevant and reliable to investors in Chinese capital market in response to the question of whether fair value measurement is reliable. In the last part, the impact of fair value measurement on Chinese financial industry and financial stability is theoretically analyzed, and accordingly the dissertation examines capital market reactions to individual pronouncements pertaining to fair value accounting. The dissertation provides some important findings as follows:1.Findings show that investors in Chinese capital market made a positive reaction to application of fair value measurement in the accounting standard'Debt Restructurings', and made a negative reaction to cancell of fair value measurement in that standard. Further findings suggest that application of fair value measurement in'Debt Restructurings'did not impair accounting information quality of listed companies, and avoidance of fair value measurement did not achieve its expected purpose successfully.2.Findings from price model indicate that fair value information of investment securities disclosed by Chinese listed companies was value relevant to investors and accordingly reliable, and historical cost information of investment securities has not lose all of its value-relevance. Findings from earnings capitalization model show that fair value component included in unrealized gain or loss of investment securities had no significant incremental value-relevance due to its no reliability, and further findings indicate that realized gain or loss of investment securities had no significant value-relevance and suggest that historical cost information included in gain or loss of investment securities was not reliable.3.The analysis shows that many conceptual issues and actual important problems related to fair value measurement have not been resolved completely and its implementation will exert a significant impact on bank industry and the whole financial system. However, further empirical findings indicate that investors in Chinese capital market made no significant negative reaction, and the size of investment securities and capital ratio of listed banks had no significant effect on the magnitude of investors'reaction.In summary, the above research results suggest that investors in Chinese capital market have a positive attitude towards application of fair value measurement in Chinese accounting standards, and fair value information disclosed by listed companies had some degree of reliability, and application of fair value measurement did not impair accounting information quality of listed companies on the whole. Those empirical findings not only help us further understand economical implication of the application of fair value measurement in Chinese accounting standards, but also have important theoretical implication and reference value for making appropriate strategy and policy of developing fair value accounting in China.