The value relevance of the fair value hierarchy of FAS 157

Abstract

Financial Accounting Standard (FAS) 157 requires disclosures of the fair value hierarchy (FVH) of assets and liabilities for financial reports issued after November 15, 2007. This dissertation examines the value relevance of the FVH across a set of industry sectors. The results suggest that the FVH is value relevant for all industry sectors. However, although the degree of value relevance varies across industry sectors, the relative amount of assets and liabilities measured at fair value, as a ratio to total assets and liabilities, does not influence the value relevance of the FVH. This study also examines the influence of several other characteristics of firms on the value relevance of the FVH across industry sectors. Its main findings suggest that book-to-market equity and a firm's status (as entering or incumbent) influence the value relevance of the FVH. The dissertation also finds some evidence that a firm's size and firm's status are related and that the firm's size may also influence the value relevance of the FVH. This dissertation is unable to find a clear pattern of the influence of liquidity (as measured by both the quick ratio and cash flow from operations) on the value relevance of the Level 3 fair value of assets across industry sectors.