An Analysis Of Factors Impacting The Value-Relevance Of SFAS No. 107 Fair Value Disclosures
Authors: Brickner Daniel R. 
Published: February 2016

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt; mso-pagination: none;"><span style="font-size: 10pt;"><span style="font-family: Times New Roman;">This study examines the impact of hypothesized factors on the value-relevance of SFAS No. 107 fair value disclosures.<span style="mso-spacerun: yes;">&nbsp; </span>These factors include firm size, the relative magnitude of the difference between the fair value and the historical cost measurements for each financial instrument, firm financial condition, and the quality of a firm&rsquo;s financial statement audit.<span style="mso-spacerun: yes;">&nbsp; </span>A pooled valuation model is employed on the sample of 867 firm years for banks and bank holding companies during the period of 1996 and 1997.<span style="mso-spacerun: yes;">&nbsp; </span></span></span></p><p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt; mso-pagination: none;"><span style="font-size: 10pt;"><span style="font-family: Times New Roman;">&nbsp;</span></span></p><p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt; mso-pagination: none;"><span style="font-size: 10pt;"><span style="font-family: Times New Roman;">The results indicate that the SFAS No. 107 fair value disclosures for investment securities, net loans, and long-term debt are value-relevant in explaining the market value of common equity for the sample banks.<span style="mso-spacerun: yes;">&nbsp; </span>With respect to the hypothesized factors, firm size was found to have a statistically significant impact on the value-relevance of the disclosures for net loans and long-term debt.<span style="mso-spacerun: yes;">&nbsp; </span>Additionally, the relative magnitude of the difference between the fair value and historical cost had a statistically significant effect on the value-relevance of the disclosure for investment securities and long-term debt.<span style="mso-spacerun: yes;">&nbsp; </span>Finally, firm financial condition and the quality of a firm&rsquo;s audit were found to have a statistically significant impact on the fair value disclosure for net loans. </span></span></p><p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt; mso-pagination: none;"><span style="font-size: 10pt;"><span style="font-family: Times New Roman;">&nbsp;</span></span></p><p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt; mso-pagination: none;"><span style="font-size: 10pt;"><span style="font-family: Times New Roman;">The results of this study are descriptive of the behavior of financial statement users with respect to these fair value disclosures.<span style="mso-spacerun: yes;">&nbsp; </span>The implications of this study&rsquo;s findings are useful for both accounting standard-setters and preparers of financial statements.<span style="mso-spacerun: yes;">&nbsp; </span>Taken together, these findings suggest that the market does not respond to the SFAS No. 107 fair value disclosures at their face value alone or without considering their context.<span style="mso-spacerun: yes;">&nbsp; </span>Specifically, it appears to look to other factors that may impact the relevance and/or reliability of these disclosures.</span></span></p>