| This study examines the impact of hypothesized factors on the value-relevance of SFAS No. 107 fair value disclosures. These factors include firm size, the relative magnitude of the difference between the fair value and the historical cost measurements for each financial instrument, firm financial condition, and the quality of a firm's financial statement audit. Using a sample of 867 calendar year-end banks during 1996 and 1997, a pooled valuation model and an earnings response coefficient model are employed to test this study's ten hypotheses.; Results from the valuation model indicate that the SFAS No. 107 fair value disclosures for investment securities, net loans, and long-term debt are value-relevant in explaining the market value of common equity for the sample banks. With respect to the hypothesized factors, firm size was found to have a statistically significant impact on the value-relevance of the disclosures for net loans and long-term debt. Additionally, the relative magnitude of the difference between the fair value and historical cost had a statistically significant effect on the value-relevance of the disclosure for investment securities and long-term debt. Finally, firm financial condition and the quality of a firm's audit were found to have a statistically significant impact on the fair value disclosure for net loans.; Results from the earnings response coefficient model indicate that among the SFAS No. 107 financial instruments examined, only the one-year change in unrealized gains and losses for investment securities was found to significantly explain firm cumulative abnormal returns over the event window of January 2nd through April 10th. Additionally, among the hypothesized factors, only firm size was found to have a statistically significant impact on the value-relevance of the change in unrealized gains and losses for investment securities.; The results of this study are descriptive of the behavior of financial statement users with respect to these fair value disclosures. The implications of this study's findings are useful for both accounting standard-setters and preparers of financial statements. Taken together, the findings suggest that the market does not respond to the SFAS No. 107 fair value disclosures at their face value alone or without considering their context. Specifically, it appears to look to other factors that may impact the relevance and/or reliability of these disclosures. |
