Relevance between the degree of industrial competition and fair value information: Study on the listed companies in China
Abstract: The purpose of this
article is to study whether there exists natural relationship between fair
value and corporate external market. A series of special phenomenon in the
application of fair value arouses our research interests, which present
evidences on how competition affects the correlation of fair value information.
Design/methodology/approach: this thesis chooses fair value changes gains
and losses and calculate the ratio of DFVPSit as the alternative variable of
the fair value. In order to effectively inspect the mutual influence between
the degree of industry competition and the value relevance of fair value, and
reduce the impact of multi-collinearity, we built a regression model on the
hypothesis, which supposes that if other conditions are the same, the fair
value information has greater value relevance if the degree of the industry
competition is greater. To test the hypothesis, we use the comparison of the
DFVPSit coefficient absolute value to judge the value relevance of fair value
information, and the greater the absolute value is, the higher relevance
between the changes in fair value per share profits and losses with the stock
prices.
Findings: The higher the degree of competition in the industry is, the
more fair value information relevance is. Also, there are evidences
representing that fair value information often presents negative correlation
with the stock price.
Originality/value: The main contribution of the article is to show that
not only need we make the formulation and implementation of the high quality of
fair value accounting standards to suit for both the national conditions and
international practice, but also need we further to improve the company's
external governance mechanism to promote fair value’s information correlation.
Author: Xuemin Zhuang, Yonggen
Luo
Journal Code: jptindustrigg150091