Acquisition and integration of fair value information on liabilities into investors' judgments

Review of Accounting and Finance - 2011
MaikLachmann1, ArntWöhrmann2, AndreasWömpener3
1Faculty of Business, Economics and Social Sciences, TU Dortmund University, Dortmund, Germany
2Münster School of Business and Economics, Westfälische Wilhelms‐Universität Münster, Münster, Germany
3University of Duisburg-Essen, Duisburg, Germany

Tóm tắt

PurposeThe International Accounting Standards Board and the Financial Accounting Standards Board allow fair value measurement of liabilities. Previous findings from the literature on recognition versus disclosure indicate that recognition of fair value information better serves investors' needs, because it is more likely to facilitate the incorporation of the information into their judgment. In cases of credit risk changes for own liabilities, however, many authors doubt that fair value measurement is beneficial due to its potential counter‐intuitiveness. The purpose of this paper is to gain insight into non‐professional investors' processing of fair value information for liabilities.Design/methodology/approachA between‐subjects laboratory experiment was employed. Subjects received financial information on three different companies. The authors manipulated the accounting treatment of liabilities between the three groups. Subjects ranked three companies according to their economic performance. The authors then compared these rankings to the companies' actual performance.FindingsThe results of the experiment indicate that non‐professional investors are less likely to acquire the information of credit risk changes when liabilities are not measured at fair value. Additionally, evidence was found that fair value measurement is to some extent counter‐intuitive for non‐professional investors.Research limitations/implicationsA main limitation is that our experiment concentrates on liabilities and abstracts from interactions of both sides of the balance sheet.Originality/valueThis is the first study to analyze in detail non‐professional investors' information processing of liabilities measured at fair value.

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