Abstract
This study examines the association between fair value measurements and the cost of equity capital under different fair value valuation methods, and assesses the impact of corporate governance on this relationship for US financial firms. We find that firms’ cost of equity capital is negatively associated with more verifiable fair value assets and positively related to less verifiable fair value assets. Furthermore, the positive association between less verifiable fair value assets and the cost of equity capital is mitigated under better corporate governance. The differential impact between more and less verifiable assets becomes smaller for firms with stronger governance. Our findings contribute to the ongoing debate on fair value regulation by investigating the economic consequences of adopting Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157) and the importance of audit committee financial expertise on fair value reporting. We also provide evidence on the importance of board independence, internal control strength, auditor industry specialists, and audit committee financial experts in fair value reporting.
| Original language | English |
|---|---|
| Pages (from-to) | 141-177 |
| Number of pages | 37 |
| Journal | Review of Quantitative Finance and Accounting |
| Volume | 46 |
| Issue number | 1 |
| DOIs | |
| Publication status | Published - 2016 Jan 1 |
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All Science Journal Classification (ASJC) codes
- Accounting
- Business, Management and Accounting(all)
- Finance
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Corporate governance, SFAS 157 and cost of equity capital : evidence from US financial institutions. / Huang, Hua-Wei; Dao, Mai; Fornaro, James M.
In: Review of Quantitative Finance and Accounting, Vol. 46, No. 1, 01.01.2016, p. 141-177.Research output: Contribution to journal › Article
TY - JOUR
T1 - Corporate governance, SFAS 157 and cost of equity capital
T2 - evidence from US financial institutions
AU - Huang, Hua-Wei
AU - Dao, Mai
AU - Fornaro, James M.
PY - 2016/1/1
Y1 - 2016/1/1
N2 - This study examines the association between fair value measurements and the cost of equity capital under different fair value valuation methods, and assesses the impact of corporate governance on this relationship for US financial firms. We find that firms’ cost of equity capital is negatively associated with more verifiable fair value assets and positively related to less verifiable fair value assets. Furthermore, the positive association between less verifiable fair value assets and the cost of equity capital is mitigated under better corporate governance. The differential impact between more and less verifiable assets becomes smaller for firms with stronger governance. Our findings contribute to the ongoing debate on fair value regulation by investigating the economic consequences of adopting Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157) and the importance of audit committee financial expertise on fair value reporting. We also provide evidence on the importance of board independence, internal control strength, auditor industry specialists, and audit committee financial experts in fair value reporting.
AB - This study examines the association between fair value measurements and the cost of equity capital under different fair value valuation methods, and assesses the impact of corporate governance on this relationship for US financial firms. We find that firms’ cost of equity capital is negatively associated with more verifiable fair value assets and positively related to less verifiable fair value assets. Furthermore, the positive association between less verifiable fair value assets and the cost of equity capital is mitigated under better corporate governance. The differential impact between more and less verifiable assets becomes smaller for firms with stronger governance. Our findings contribute to the ongoing debate on fair value regulation by investigating the economic consequences of adopting Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157) and the importance of audit committee financial expertise on fair value reporting. We also provide evidence on the importance of board independence, internal control strength, auditor industry specialists, and audit committee financial experts in fair value reporting.
UR - http://www.scopus.com/inward/record.url?scp=84953359938&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=84953359938&partnerID=8YFLogxK
U2 - 10.1007/s11156-014-0465-1
DO - 10.1007/s11156-014-0465-1
M3 - Article
AN - SCOPUS:84953359938
VL - 46
SP - 141
EP - 177
JO - Review of Quantitative Finance and Accounting
JF - Review of Quantitative Finance and Accounting
SN - 0924-865X
IS - 1
ER -