Empirical Research On Value-relevance Of Fair Value Accounting For Finance Assets

The fast expansion of capital market has led to a significant change in finance accounting, investors come to pay more attention to the decision-usefulness of accounting information. In contrast to historical cost method, the fair value accounting method much accurately reflect the dynamic market and owners equity, then significantly improves the value relevance of accounting information, hence benefits investors much to develop investment strategy. As a consequence, the concept of fair value yields many researchers’attention and becomes implemented in practice. Both International Accounting Standards Board (IASB) and US Financial Accounting Standards Board (FASB) has established accounting standard for fair value method. Besides, the domestic and foreign researchers undertake numerous thorough investigation related to fair value. However there are still some obstacles in the development of its application. Accutally, after 2008 worldwide financial crisis, the application of fair value method suffers lots of suspect and challenge, and its value relevance turn a critical issue concerned by governments and reseachers. Especially, currently the study of value relevance of fair value method in financial assets is essentiacal for a robust domestic stock market which is developing quite rapidly. Thus in this paper, based on real data of domestic stock market, we do some investigation about this issue, and hope to somehow propel the practical application of the fair value in our country.Firstly, in this paper we review the related work about fair value method, such as varied definitions of fair value and the theories of the value-relevance of fair value accounting method, also introduce the status of domestic application of fair value method in financial assets. Secondly, based on net earnings theory and Feltham-Ohlson valuation theory, according to the domestic practical application of fair value accounting method, we develop the traditional pricing model and earning model, and proposal three hypothesizes about value-relevance of financial assets fair value method:Hypothesis 1:there is high relevance between the change from fair value per share and share price. Hypothesis 2:there is high relevance between the change from fair value per share and return rate per share. Hypothesis 3:it exist value-relevance in the changes of fair value of financial assets available for sale per share. Thirdly, we choose some A-share listed companies, collect and filter the data from their annual financial report, to test our three hypothesizes. Here we select share price as the dependent variable. According to modified pricing model and earning model, via descriptive statistical analysis, correlation analysis and regression analysis, we obtain following conclusion. Data analysis demonstrates that, the gain from fair value per share and the change in fair value of financial assets available for sale per share, both exhibit considerably correlation with share prices, and those two indicators are also value-relevance. Finally, according to our investigation result and the domestic status, we give several suggestions for the application of fair value method in China.