Disclosure Quality Related to Fair Value and Value Relevance of Accounting Information

Abstract

This study examines whether the value relevance of accounting information has increased since the adoption of the K-IFRS No. 1113 ‘Fair Value Measurement’ standard in 2013. In addition, the study investigates whether the disclosure quality measured in accordance with the best practices of disclosure of fair value measurement provided by the Financial Supervisory Service is related to the value relevance of accounting information. Using a balanced panel sample of listed companies in Korea from 2012 to 2013, the study finds the following results. The introduction of a new standard that systematizes fair value measurement and disclosure shows a significant relationship with the value relevance of accounting information measured as net assets. On the other hand, the introduction of a new standard does not show a significant relationship with the value relevance of net earnings. In addition, the disclosure quality related to fair value is positively related to he value relevance of net assets. This implies that the introduction of a new standard has been useful for investors who demand high-quality disclosure and accounting information related to fair value. The results of this study have the following policy implications. First, the adoption of the K-IFRS No. 1113 increases the usefulness of fair value information, and these results are differentiated according to disclosure quality. Second, this study suggests that continuous monitoring about disclosure quality related to fair value by the regulatory authorities is necessary to improve the accounting system for fair value measurement. © 2022, Korean Accounting Association. All rights reserved.