The Value Relevance of Fair Value Accounting Information during Financial Crisis

The main purpose of this study is to examine if fair value accounting information remains relevant in the event of a financial crisis. The research period ranges between 2000 and 2008. We use data from 497 listed firms in Taiwan. We will use Ohlson's (1995) accounting-based valuation model. Results indicate that after implementation of fair value accounting, accounting information reported by fair values becomes more value relevant than accounting information reported by historical costs, and such fair value accounting information also has higher explanatory power for stock prices. In addition, as the book value of equity becomes more relevant to the market value, the value relevance of earnings will significantly decline. However, when the effect of financial crisis is considered, the value relevance of accounting information reported by fair values becomes different. This finding also implies that there will be a structural change in the investors' perception of accounting information in the event of a financial crisis. In this study, the value relevance of accounting information during non-crisis periods is also observed. In general, fair value accounting contributes to higher value relevance of accounting information. Therefore, if the fair value of firm assets and liabilities are properly and objectively determined, the firm valuation result can be more accurate, and accounting information will also become more relevant. To this end, the authority responsible for development of accounting standards should offer more guidelines to compilers of financial statements and build a better valuation system that can generate more relevant information to users of financial statements.