Research On The Relevance Of Fair Value Measurement

In2006, Ministry of Finance, PRC has released new accounting standards, fair value measurement has been applied in new accounting standards of China. Meanwhile, financial accounting standards board (FASB) has also announced an accounting standard on fair value, giving a clear definition of the fair value measurement system. However, the fair value measurement has been carried out for not a long time, in2007, a financial crisis breaks out and spreads quickly to the global economies. Finance industry claimed that it was the fair value measurement that boosted and amplified the financial crisis, enhanced the pro-cyclical effect, which made the fair value measurement in the eye of the storm.Under the background of the above, the essay tries to study that whether the fair value measurement has provided the investors more relevant information after the fair value measurement is introduced to the new accounting standards. What is more, this essay also tries to examine whether the fair value measurement provides incremental information content, compared to the historical cost measurement. Through the empirical study, we get the following conclusions:First, after the fair value measurement is brought into the new accounting standards, net assets per share and earnings per share improve greatly the explanation ability of the stock price. Specifically, the explanation of the stock price is almost as twiceas that under the old accounting standards, which indicates that the market has accepted the fair value measurement, and investors have made investment decisions based on the accounting data under the fair value measurement.Second, profits and losses from fair value changes per share and net changes in fair value of available-for-sale financial assets per share have incremental information content compared with the historical cost measurement information, and investors have already reflect the incremental information in the changes of the stock price.Third, the concept of asset-liability which the new accounting standards attempt to guide is not well reflected in the study. Fromregression results of the three models, we can find out that even through fair value measurement has greatly improved the accounting statements information quality, earnings per share still have a higher weight on the stock price than the net assets per share, when the investors are making investment decisions.According to the conclusion, this essay offers the following proposals:to further improve the fair value theory system; to enhance off-sheet disclosure of the fair value information; to build orderly market; to cultivate the professional quality of accounting practitioners.