The Empirical Research Of Relationship Between Fair Value Measurement And Enterprise Debt Contract

The research about fair value are almost basing on the concept of information or contract. Normative research more than the empirical research.The empirical researches are main basing on the concept of information. The useful of fair value is belong to the concept of information.Sun Zheng and Liu Hao point out that: The empirical research of fair value basing on the concept of contract is meaningful in the background of not perfect commercialize degree and legal system. The paper researched the relationship between fair value and enterprise’s debt contract on the concept of contract. The paper contains six parts.Part one, the part introduces the paper’s purpose and significance, the background of system, method of research and the paper’s structure. The purpose and significance of the paper is researching the relationship between fair value and enterprise’s debt contract in the background of not perfect legal system. To provide some empirical evidences for enterprise debt financing. The background of system contains commercialize degree and law of property protection. By researching literature about enterprise’s debt contract, summarizing the scholars’ research results. Four models have been established.Part two, this part firstly introduce the definition of the fair value, and then discuss the fair value form there levels. Secondly summarize the characteristics of the fair value, such as hypothetical, unrealized, subjective. At last, the paper reviews the researches about the fair value.Part three, this part is the theoretical analysis and the research hypotheses. There are research have proved that accounting information could influence the debt contracts. For example, Libby (1975) and Zimmer (1980) proved that credit personnel can use financial ratios to forecast the probability of the enterprise bankruptcy. Larry(1992)、Jones(1995)、Billings&Morton(2002) found that operating cash flow is important to credit evaluation. Amount empirical research of fair value shows that fair value is useful than historical cost. Fair value is useful for investor to do investment decisions. The degree of commercialize degree is relate to the debt contracts. In the higher degree of commercialize degree area, short-term debts are more than long-term debts. Profitability is important to long-term debts, and liquidity is important to short-term debts. The fair value could influence liquidity and profitability. So, fair value may be correlated to debt contracts.Part four is the study design. We analyze variables which are researched in this paper, and find that Chinese listed companies mainly rely on short-term debts; the total value of trading financial assets and available-for-sale financial assets accounts a smaller proportion of total assets. Model regression results show that trading financial assets and available-for-sale financial assets is negatively correlated to short-term debts and long-term debts, and the correlated with short-term debts is higher than the long-term debts.Part five is the research results and policy recommendations. The research results is that measurement of fair value has significant relationship with the company’s debt. When the company’s debt levels are rising, whether short-term debts or long-term debts, the company will correspondingly reduce the investment of that trading financial assets and available-for-sale financial assets.The correlation of short-term loans and financial assets is higher than the long-term debts. When they increase their short-term debts, the company would reduce the investment of financial assets, and the magnitude of investment reduce is smaller than that in the case of increasing the long-term debts.The contribution of this paper is as following:(1) This paper completes the research on fair value from the view of contract concept, analyses and verification that the scale of assets measured in fair value has a significant relationship with the scale of debt, and that the scale of assets measured in fair value also has a significant relationship with debt period structure.(2) The paper constructs a new explanatory variable in the linear regression model of the debt scale. The existing research on the relationship with fair value, debt rates and the debt scale, literature from the point of view of the changes in fair values. While this paper is to study the relationship between the ratio of assets measured in fair value to total assets and the scale of debt.(3) The sample of this study is the data of company listed in Shanghai and Shenzhen A-share from2007to2010. But the time span of data in previous literature is shorter. The paper adds the financial data of listed companies in2010, extends the study period and enriches the sample size,to make the results more accurate.Due to the limitations of the author of the accumulation of knowledge and research methods, the paper also has some limitations, mainly as following:(1) Although there is some study documents that the degree of market has a significant effect on the maturity structure of debt, the obtain of the ranking of market-oriented is hard, so there are no variables of the degree of market in the debt maturity structure of the regression model.(2) This article only examines the balance sheet the relationship between the value of trading financial assets and available-for-sale financial assets and the scale of short-term debt and long-term debt. But there is no inspection of the relationship between these two types of financial assets at fair value and the new debt.(3) The accounting information of the fair value in this article only include the fair value of trading financial assets and available-for-sale financial assets, notincluding the fair value information of the other financial instruments, investment of real estate, the assets obtained by non-monetary assets exchange.