Convergence in Motion: A Review of Fair Value Levels' Relevance

37 Pages Posted: 7 Jan 2020 Last revised: 30 Mar 2021

See all articles by Andrei Filip

Andrei Filip

ESSEC Business School

Ahmad Hammami

John Molson School of Business, Concordia University

Zhongwei Huang

Fudan University - School of Management

Anne Jeny

IESEG School of Management

Michel Magnan

Concordia University - Department of Accountancy

Rucsandra Moldovan

John Molson School of Business, Concordia University

Date Written: December 20, 2020

Abstract

The IFRS 13 post-implementation review by the IASB motivates our investigation on the value relevance of fair value (FV) measurement hierarchy (i.e. level 1, level 2, and level 3). First, using a meta-analysis, which allows us to summarize inconsistent empirical findings, we synthesize studies on the value relevance of the FV hierarchy. Overall, value relevance is lower for level 3 than for levels 1 and 2, but it increases over time. In non-U.S. studies, we note lower value relevance across all levels of FV assets. Underlying asset fundamentals, model risk, and measurement process complexity may contribute to this value relevance gap. Second, from interviews with professionals from financial institutions, we note that, in practice, there has been extensive learning about FV accounting since the 2007‒9 Financial Crisis and a formalization of the valuation process that the academic literature has yet to fully recognize. We thus highlight conceptual and methodological issues and areas for research with practical implications.

Keywords: Fair value hierarchy; Fair value measurement; Meta-analysis; Valuation process; Fair value audit; IFRS 13; SFAS 157; ASC 820

JEL Classification: M41, M42, M48

Suggested Citation

Filip, Andrei and Hammami, Ahmad and Huang, Zhongwei and Jeny, Anne and Magnan, Michel and Moldovan, Rucsandra, Convergence in Motion: A Review of Fair Value Levels' Relevance (December 20, 2020). Available at SSRN: https://ssrn.com/abstract=3504756 or http://dx.doi.org/10.2139/ssrn.3504756

Andrei Filip

ESSEC Business School ( email )

3 Avenue Bernard Hirsch
CS 50105 CERGY
CERGY, CERGY PONTOISE CEDEX 95021
France
+33 1 34 43 33 61 (Phone)

Ahmad Hammami

John Molson School of Business, Concordia University ( email )

Montreal, Quebec H3G 1M8
Canada

Zhongwei Huang

Fudan University - School of Management ( email )

No. 670 Guoshun Road
Shanghai, 200433
China

HOME PAGE: http://huang-zw.github.io

Anne Jeny

IESEG School of Management ( email )

Socle de la Grande Arche
1 Parvis de la Defense
Puteaux, Paris 92800
France

Michel Magnan

Concordia University - Department of Accountancy ( email )

Montreal, Quebec H3G 1M8
Canada

Rucsandra Moldovan (Contact Author)

John Molson School of Business, Concordia University ( email )

Montreal, Quebec H3G 1M8
Canada
+1-514-848-2424 ext 2528 (Phone)

HOME PAGE: http://https://sites.google.com/site/rucsandramoldovan

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