The Impacts Of Fair Value On Firm’s Investment Efficiency

The fair value was suggested "modest and prudent" introduce by the new CAS what was published in.2006. But a year later in2007, American, where the fair value is widely used, broke out a serious financial crisis and damaged the global economics. In the crisis, the fair value accounting was accused by its "pro-cyclical effect", critics pointed out the "pro-cyclical effect" of fair value accounting promoted the development of the financial crisis. When the capital markets are prosperity, the pro-cyclical effect will drive the capital markets further prosperity; conversely, when the capital markets are downturn, the pro-cyclical effect will accelerate capital markets downturn. Such irrational exuberance and recession could exacerbate the irrational psychological of the investors and managers.The micro-investment efficiency on enterprises’level is not only a key factor for business development and enhance the value, but also determines the macro-investment efficiency. In China, for the contribution to economic growth, the investment is the most important driving force. Thus, the macro-investment efficiency which depends on the micro-investment efficiency play a vital role in China’s macro-economy growth. Numerous researches have shown that, the irrational psychological of investors and managers would effect the investment efficiency. Since the pro-cyclical effects would exacerbate the irrational psychological, so does the fair value could impact the investment efficiency? What is the influence mechanism? And how extent of the influence? These issues are the focus of the paper. We can improve fair value accounting standards, guide and regulate the investment behavior from the theoretical level through solve these issues.This paper studies the impact of the fair value on the enterprise investment efficiency based on the behavior finance corporate theory. The results have shown that:first, the China’s A-share listed enterprises which have change in the fair value were gradually increasing during2007-2013, the use of the fair value have a serious "pro-cyclical effects"; second, the fair value has a significant impact on the enterprises’ investment efficiency, when the changes in fair value recognized in profit or loss is negative, the relationship between investment efficiency and the changes of fair value is significantly negative. Conversely, when the changes in fair value recognized in profit or loss is positive, the relationship between the changes of fair value and investment efficiency is significantly positive; third, for the cases that the changes in fair value recognized in profit or loss is positive, when the capital markets was in a bear market, companies are more prone to excessive investment than the bull markets. However, for the cases that the changes in fair value recognized in profit or loss is negative, when the capital markets was in a bull market, companies are more prone to underinvestment than the bear markets. The thesis is divided into five chapters:Chapter one, introduction. This section introduces the background and significance, describes the research methods and research framework of this paper. And the innovation and shortcomings of this paper is pointed out in this section.Chapter two, the theoretical foundation. This section discusses the basic theory: the fair value theory and the behavior finance theory.Chapter three, we study how the fair value impact on corporate investment behavior.In this section, we analyzed how the fair value impact the irrational psychological of corporate managers and investors, and then based on the behavior finance theory, we explored how the irrational psychological affect the investment behavior of enterprises, thus we build up the theoretical framework of fair value effects the company investment efficiency.Chapter four, the empirical analysis. First, we proposed the hypothesis of this paper; then we use the descriptive statistical analysis, regression analysis, mean comparison of independent samples to verify the hypothesis.Chapter five, conclusions and policy recommendations, the main conclusions and policy suggestions are given. And this section identifies the shortcomings and further research topics.There three innovations of this paper. First, we face more far-reaching impact for the application of fair value and extend the impact scope of the fair value’s application. The perspective limitations of accounting research limits the development of accounting disciplines and the play of the role of accounting, and this paper concerns the "externalities" arising from the application of fair value. Second, this paper strengthening the fusion of finance discipline, corporate governance and accounting, and promote the development of investment efficiency factors theory. Third, the innovation of research perspective. Based on the behavior corporate finance theory such a newer and more cutting-edge perspective, this paper study the relationship between the fair value and investment efficiency. The shortcomings reflected in the following three aspects:First, the defining of fair value’s scope, this paper defined the fair value is reflected in the "changes in fair value recognized in profit or loss", we did not consider other "changes in the fair value" subjects included in other capital reserves, this may affect the robustness of the results; Second, the research is compared superficial, we don’t investigate different ownership’s and different industries’ impact to the relationship between fair value and investment efficiency; Third, the time span has some limitations.