The Fair Value Hierarchy Information And Accounting Conservatism

Fair value measurement is divided into three levels.The first level comes from an active market environment,which involves lower management discretion,stronger verifiability and reliability.The second and third levels are derived from the non-active market environment.Since the sources of input value and the model involve more discretion of the management,it is difficult to verify the true fairness.When the company’s fair value measurement at the second and third levels is relatively high,the greater the information asymmetry risk investors face,the more likely to trigger the adverse selection.Therefore,in order to reduce the risk of information asymmetry,corporate management has the incentive to increase the reliability of the fair value measurement at the second and third levels.The accounting conservatism as an effective corporate governance mechanism,asymmetry of the recognition of revenue and losses,can effectively reduce the risk of information asymmetry between companies and investors,and effectively protect the interests of shareholders and creditors.Therefore,when investors face a higher risk of information asymmetry,they will require high accounting conservatism to protect their own rights and interests.Based on this,this paper attempts to explore the relationship between fair value hierarchy and accounting conservatism.Because management always has an incentive to inflate earnings,while the accounting conservatism makes the company’s earnings at a relatively low level,management has no incentive to improve its accounting conservatism.However,when the company is faced with financing needs,in order to win the support of investors and receive lower-cost financing,management will have a strong incentive to meet the demand of investors for high accounting conservatism.So,this paper further explores the influence of financing demand strength and the difficulty degree of financing demand on the fair value hierarchy and accounting conservatism.This paper selects the empirical data of Shanghai and Shenzhen A-shares from2014-2016,draws lessons from the model of Basu(1997),introduces fair value hierarchy data as independent variables,and explores the causal relationship between fair value hierarchyand conditional accounting conservatism from a new perspective by adopting the method of empirical research combined with the theoretical research on the basis of careful combing previous literature.Further,Exploring the strength of financing needs,the difficulty of financing needs weak.The empirical test shows that :(1)The higher the proportion of fair value of the second and third levels,the higher the accounting conservatism;There is no correlation between the first level fair value measurement and the accounting conservatism.(2)Compared with enterprises with weak financing needs,the higher the proportion of fair value of the second and third levels in the enterprises with strong financing needs,the higher the accounting conservatism.(3)Compared with state-owned enterprises,the higher the proportion of the fair value of the second and third levels in the non-state-owned enterprises,the higher the accounting conservatism.(4)Compared with the non-state-owned enterprises with strong political relations,the higher the proportion of the fair value of the second and third levels in the non-state-owned enterprises with weak political relations,the higher the accounting conservatism.