Does Fair Value Measurement Model Have Value Relevance? Empirical Evidence from Financial Assets Investigation

At the beginning of 2007,China's listed companies adopted the new Chinese accounting standards which included 39 specific principles that are much closer to Internation- al Financial Reporting Standards(hereinafter IFRS).The benefits and costs of these accounting standards reforms for China are still unclear.On the one hand,the new accounting standards will encourage investor confidence in China's securities market and financial reporting; on the other hand,companies undergoing transition to the new system,especially in emerging markets,may find it difficult to present a true picture of the impact of the change.So there is still unclear whether the change of Chinese accounting standards will enhance or damage Shareholder value.The old Chinese accounting standards are based on historical cost while the new Chinese accounting standards places more emphasis on fair value measurements which will more fairly reflect assets and transactions,so our research focus on financial assets and raise an important question:does fair value measurement model have value relevance? Taken A-share listed companies,the major component of China's securities market,as research samples,this paper investigate the value relevance of fair value vs.historical cost, unrealized gains and losses.The empirical results show that compared to historical cost,fair value has incremental value relevance;unrealized gains and losses from fair assets are value relevant;in two kinds of fair assets,unrealized gains and losses from available for sale have value relevance,but trading financial assets don't.The results provide empirical evidence for the implementation and effect of international accounting standard putted into China's securities market.As the same time,it can help the supervisor and industry understand the role of fair value measurement model accurately. Our research makes two important contributions.Firstly,we investigate the value relevance of financial assets in non-financial firms that being compared to the empirical evidence in financial firms from developed countries.Secondly,the new Chinese accounting standards do have an influence on China's securities market,providing empirical evidence that suggests,at least in financial assets,the IFRS-based new Chinese accounting standards produces value relevant accounting information,which is new empirical evidence from emerging markets.