Determinants of discretionary fair value measurements: the case of Level 3 assets in the banking sector
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The objective of our research was to respond to the call of Barth and Taylor (2010) for more research to examine the role of discretion in fair value estimates. Specifically, we investigate factors that explain banks’ accounting choices to use Level 3 valuation inputs from the fair value measurement hierarchy. Using hand-collected data from a sample of international banks during 2009–2013, we find that incentives to use discretionary Level 3 valuation inputs, which can provide an opportunity to manage earnings, are associated with both firm-level and country-level determinants. Additional tests provide evidence that Level 3 ‘transfer-in’ behaviour is related to changes in bank characteristics.
Accounting and Finance
This publication has been entered into Griffith Research Online as an Advanced Online Version.
Accounting, Auditing and Accountability not elsewhere classified