Valuation Specialist, Earnings Persistent and Level 3 Fair Value Measurements

Chen Bu, Yuyu Zhang and Daifei Yao

Accounting and Finance, 2025, vol. 65, issue 3, 2866-2893

Abstract: We investigate the significance of valuation specialists within audit teams in shaping the association between earnings persistence and banks' exposure to Level 3 fair value measurements (FVMs). Using a sample of international banks, we find that a bank's exposure to Level 3 FVMs improves earnings persistence only when auditors engage valuation specialists for Level 3 FVMs. Our findings suggest that valuation specialists are more likely to complement auditors' expertise in auditing Level 3 FVMs, thereby enhancing the reliability of audited Level 3 FVMs and strengthening the association between earnings persistence and Level 3 FVMs.

Date: 2025
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https://doi.org/10.1111/acfi.70022

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