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Differences in the Reliability of Fair Value Hierarchy Measurements: A Cross-Country Study
Journal of Finance and Accounting
Volume 8, Issue 4, July 2020, Pages: 199-207
Received: Jun. 19, 2020; Accepted: Jul. 16, 2020; Published: Aug. 5, 2020
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Chu Yeong Lim, Nanyang Business School, Nanyang Technological University, Singapore
Gary Pan, School of Accountancy, Singapore Management University, Singapore
Kevin Ow Yong, Design and Specialized Business Cluster, Singapore Institute of Technology, Singapore
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Prior research suggests there are significant differences in how investors perceive the reliability of fair values. An unaddressed question in this stream of research is whether cross-country differences in institutional factors can mediate differences in reliability for the fair value hierarchy measurements. We contribute to the research on fair value accounting by examining the impact of institutional factors toward the perceived reliability of fair value measurements in an international context. Based on an international sample of banks across twenty different countries, we find that the probability of crash risk is lower among countries with better financial development infrastructure, greater level of trust, tighter security regulations and higher level of disclosure requirements. These results apply to Level 1 assets but not to Level 2 and Level 3 assets. We also document that these cross-country factors improve the trading volume of our sample banks. Our study provides early evidence suggesting that fair value measurements across the fair value hierarchy are impacted by a country’s institutional background and financial development as well as the extent of its securities regulation and disclosure level. Our study suggests that there are ongoing concerns toward opaque fair values which are not fully eliminated by institutional differences. In addition, these differences matter in influencing investor willingness to trade in these stocks.
Fair Value Accounting, Institutional Factors, Reliability
To cite this article
Chu Yeong Lim, Gary Pan, Kevin Ow Yong, Differences in the Reliability of Fair Value Hierarchy Measurements: A Cross-Country Study, Journal of Finance and Accounting. Vol. 8, No. 4, 2020, pp. 199-207. doi: 10.11648/j.jfa.20200804.15
Copyright © 2020 Authors retain the copyright of this article.
This article is an open access article distributed under the Creative Commons Attribution License ( which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
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