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Value Relevance of FAS 157 Fair Value Hierarchy Information and the Impact of Corporate Governance Mechanisms


Chang Joon Song


Virginia Tech

Wayne B. Thomas


University of Oklahoma - Michael F. Price College of Business

Han Yi


Korea University

August 13, 2009

Accounting Review, Vol. 85, No. 4, 2010

Abstract:     
Statement of Financial Accounting Standards No. 157 (FAS 157), Fair Value Measurements, prioritizes the source of information used in fair value measurements into three levels: (1) Level 1 (observable inputs from quoted prices in active markets), (2) Level 2 (indirectly observable inputs from quoted prices of comparable items in active markets, identical items in inactive markets, or other market-related information), and (3) Level 3 (unobservable, firm-generated inputs). Using quarterly reports of banking firms in 2008, we find that the value relevance of Level 1 and Level 2 fair values is greater than the value relevance of Level 3 fair values. In addition, we find evidence that the value relevance of fair values (especially Level 3 fair values) is greater for firms with strong corporate governance. Overall, our results support the relevance of fair value measurements under FAS 157, but weaker corporate governance mechanisms may reduce the relevance of these measures.

Number of Pages in PDF File: 50

Keywords: FAS 157, Value Relevance, Fair Values, Fair Value Hierarchy, Corporate Governance

JEL Classification: G12, M41, M44, G34, M49

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Date posted: August 5, 2008 ; Last revised: December 17, 2009

Suggested Citation

Song, Chang Joon and Thomas, Wayne B. and Yi, Han, Value Relevance of FAS 157 Fair Value Hierarchy Information and the Impact of Corporate Governance Mechanisms (August 13, 2009). Accounting Review, Vol. 85, No. 4, 2010. Available at SSRN: http://ssrn.com/abstract=1198142 or http://dx.doi.org/10.2139/ssrn.1198142

Contact Information

Chang Joon Song
Virginia Tech ( email )
Department of Accounting and Information Systems
3007 Pamplin Hall
Blacksburg, VA 24061
United States
540-231-7155 (Phone)
Wayne B. Thomas (Contact Author)
University of Oklahoma - Michael F. Price College of Business ( email )
Michael F. Price College of Business,
307 W Brooks, Rm 212B
Norman, OK 73019
United States
405-325-5789 (Phone)
405-325-7348 (Fax)
Han Yi
Korea University ( email )
Hyundai Motor Hall 502
Korea University Business School
Seoul, 136-701
Korea
+82-2-3290-2629 (Phone)
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