Influence Of Fair Value Measurement On Enterprise Debt Financing Behavior

This study is based on the bounded rationality of managers, and the purpose is the influence of fair value evaluation on the debt financing behavior.In January1,2007, the new accounting principle is published for listed companies in China, which argues the large-scale application of fair value. Fair value is an evaluation method that can reflect the information in the future. So the application of fair value in practice can increase the relevance of accounting information, then help the managers to make business decisions.Some scholars believed that fair value is measured based on the market output variables which rely on the users of accounting information. So it may be a trend to replace the historical cost evaluation to the fair value estimation.However, the financial crisis broke out in America in2008, and quickly spread to the capital markets in Europe and other countries. Many companies, especially financial institutions started to reconsider the fair value. They believed the financial crisis was mainly caused by the fair value method which was widely used to evaluate the asset and liability. Both IASB and FASB were forced to modify the principles about fair value.There are more and more researches on the fair value after the financial crisis, and some of them study how the fair value method influences the debt financing which assumes members in the market are rational. However, fair value is a kind of estimated price based on the market. Its estimation is based on the rationality that merely people could be. So fair value in practice contains the feelings of bounded rational members in the market, and the asset evaluation may have a deviation. It is more convictive to study the influence on the basis of bounded rationality in this dissertation.Through theoretical analysis, we can find indexes such as profit, debt-to-asset ratio are affected after the use of fair value. Managers may be bound rational when they face the changes and think irrationally about the return and risk in the future. Since most companies borrow money from different banks in China, this study considers the bank as the creditor. Banks concern the fair value changes and treat accounting information differently based on expires of debt. If the expire is limited, banks care more about fair value and the premium. If the expire is long, fair value is not as important as the one in previous situation.This study analyzes how the application of fair value affects debt financing in different situation with the support of bound rationality theory. We study this problem from total debt aspect, long term aspect and current term aspect.The positive result shows that the level change of fair value is positively related to the total debt size and current debt size, and merely related to the long term debt. This result is consistent with the theory analysis.The main contribution of this study is listed as follows. Firstly, this study positively test the impact of fair value on the debt financing with the support of bound rationality which few scholars study from this aspect. Secondly, we analyze this problem from total debt, current debt and long-term debt aspect. The result will be more reliable and relevant.There are shortages in this study. In the positive test part, we only exclude the financial institution and then put data from different industries together. And the variables about this problem may not fully contained in the model because of the limitation of my knowledge.