Determinants of Discretionary Fair Value Measurements: The Case of Level 3 Assets in the Banking Sector

37 Pages Posted: 25 Jun 2018

See all articles by Daifei Yao

Daifei Yao

Queensland University of Technology - School of Accountancy

Majella Percy

Griffith University

Jenny Stewart

Griffith University - Griffith Business School

Fang Hu

Griffith University - The Department of Accounting, Finance & Economics

Date Written: June 2018

Abstract

The objective of our research was to respond to the call of Barth and Taylor ([Barth, M., 2010]) for more research to examine the role of discretion in fair value estimates. Specifically, we investigate factors that explain banks’ accounting choices to use Level 3 valuation inputs from the fair value measurement hierarchy. Using hand‐collected data from a sample of international banks during 2009–2013, we find that incentives to use discretionary Level 3 valuation inputs, which can provide an opportunity to manage earnings, are associated with both firm‐level and country‐level determinants. Additional tests provide evidence that Level 3 ‘transfer‐in’ behaviour is related to changes in bank characteristics.

Keywords: Fair value measurement, Fair value hierarchy, Accounting choice, International banks

Suggested Citation

Yao, Daifei and Percy, Majella and Stewart, Jenny and Hu, Fang, Determinants of Discretionary Fair Value Measurements: The Case of Level 3 Assets in the Banking Sector (June 2018). Accounting & Finance, Vol. 58, Issue 2, pp. 561-597, 2018, Available at SSRN: https://ssrn.com/abstract=3201378 or http://dx.doi.org/10.1111/acfi.12225

Daifei Yao (Contact Author)

Queensland University of Technology - School of Accountancy

2 George Street
Brisbane, Queensland 4000
Australia

Majella Percy

Griffith University ( email )

170 Kessels Road
Nathan, Queensland QLD 4111
Australia

Jenny Stewart

Griffith University - Griffith Business School ( email )

Brisbane, Queensland 4111
Australia

Fang Hu

Griffith University - The Department of Accounting, Finance & Economics ( email )

Nathan Queensland 4111
Australia
+61 7 3735 7559 (Phone)
+61 7 3735 3719 (Fax)

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