Fair Value Accounting and Earnings Management

Pei-Hui Hsu () and Youan (Robert) Lin ()
Additional contact information
Pei-Hui Hsu: California State University, U.S.A.
Youan (Robert) Lin: California State University, U.S.A.

Eurasian Journal of Business and Management, 2016, vol. 4, issue 2, 41-54

Abstract: Many have argued that measuring financial instruments at fair value might not reflect firms’ financial condition. Prior study finds that managers manipulate the “disclosure” of fair value measurement (Song et al. 2010). In this study, we attempt to provide evidence regarding manager’s incentive to manipulate the disclosure of fair value measurements by examining whether the disclosure of less relevant fair value measurement is related to the odds of earnings management. We find that firms with more Level 3 assets and liabilities (i.e., less value relevant fair value measurement) are more likely to recognize positive unrealized gains to meet or beat analyst forecast target. In addition, we find that only firms with weak corporate governance disclose more Level 3 fair value liabilities and recognize unrealized gains into reported earnings to meet or beat analyst forecast target. This evidence suggests that managers manipulate the disclosure of fair value measurement in order to manage reported earnings via the adoption of fair value option.

Keywords: Fair Value Option; Fair Value Measurement; FAS157; FAS159; Earnings Management (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://eurasianpublications.com/wp-content/uploads/2021/02/EJBM-4.2.4.pdf (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ejn:ejbmjr:v:4:y:2016:i:2:p:41-54

Access Statistics for this article

Eurasian Journal of Business and Management is currently edited by Nidžara Osmanagić-Bedenik

More articles in Eurasian Journal of Business and Management from Eurasian Publications
Bibliographic data for series maintained by Esra Barakli ().