Measured At Fair Value Accounting Information Content Of Commercial Banks

On the Feb. 15^th, 2006, the treasury department issued new accounting principle, which included many great changes in some important aspects, and one of the key points is the fair value accounting method. Fair value is the sum of actual or assumed fair transaction price of asset exchange and liability payoff made by both parties who are familiar with the situation in their own will, based on normal commercial consideration in the report day. The using of fair value method has been argued for a long time between accounting standards setters and banking regulation bodies. In the beginning, the paper makes a comprehensive review of the related theories and papers, especially about the influence of fair value method on the banks. And then, according to the situation in China, the influence of fair value method on the accounting information content is empirically examined.Based on the annual and interim report data of commercial banks listed at A stock exchanges from 2001 to 2005, this research selects 30 samples after ticking out the samples without full data and uses R-E model, M-to-B model and RIM model to find out the relationship between market data and the difference between fair value-based accounting data and historical cost accounting data.The results indicate that fair value method has significant effect on the information content of net asset per share and weak significant effect on the information content of operating profit per share. But the effect on the information content of net income per share and the net income per share after deducting nonrecurring profit per share is not significant. There are many reasons. Firstly, small sample results in insignificant difference between fair value-based earnings and historical cost earnings. Secondly, the income of commercial banks in China is mostly from the difference between loan and deposit whose price can not directly get from the market. So estimating their value will cause computation errors. Thirdly, regulatory capital was not calculated using fair value method during sample period, so investors did not think the fair value earnings will help predict the share price. Lastly, the stock market in China is young and immature, whose structure and environment will change rapidly. This will affect the results of the research.