Research On Value Relevance Of Fair Value Hierarchy

In2006，China’s Accounting Standards Board published the new AccountingStandard for Business Enterprises， which reintroduce and define the fair valuemeasurement. The reintroduction fair value was designed to improve the quality ofaccounting information, and help the users of financial statements in particular investorsto make rational economic decisions. Due to the inherent limitations inherent in the fairvalue, where it is adapt to our current economic environment, and whether it reallyimproves the value relevance of the information disclosed in the financial statements ofcompanies are worth exploring. Based on the fair value hierarchy disclosure anddetailed information, the paper empirical the Value Relevance of the fair value offinancial data disclosed by Chinese listed companies.This paper first reviews the theoretical of fair value, analysis the concept of fairvalue, the relationship between the fair value and other measurement attribute, thereliability of value and the fair value hierarchy, efficient markets hypothesis, thehypothesis of asymmetric information, cost of capital hypothesis and so on. Secondly，The second analyze and summarize the literature related to this article to establish thetheoretical basis of this study. Third we add new variables to price model for correlationanalysis and regression analysis on accounting data since fair value measurementapplied. And then verify the correlation between the new variables and the price ofstock, if the accounting information is value-relevant as well. fourth, to furtherdetermine the value-relevant of fair value is due to the fair value itself.The paper usethe fair value hierarchy information and asset betas, testing the relationship of fair valuehierarchy of information and the cost of capital. Finallypaper presents some policyrecommendations for application of fair value.We concluded after empirical research that there is a positive correlation betweenstock price and fair value gains and losses of trade’s financial assets andavailable-for-sale financial assets regression coefficient is significantly different fromzero as well. It suggests that fair value is value-relevant since the implement of NewAccounting Standards, which improve the quality of accounting information andenhance the usefulness of accounting information in decision-making. A firm withgreater exposure to level2financial assets exhibit higher betas relative to thosedesignated as level1.But level3financialassets don’t meet the statistical significance.