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Fair Value Accounting

Implications for Users of Financial Statements

Series:

Kristian Bachert

Fair value accounting is viewed as a major feature of IFRS and several standards either require assets to be measured at fair value or at least provide an option to fair value measurement instead of applying historical cost. While it is argued that fair values provide more timely and relevant information, the global financial crisis led to a considerable debate about the usefulness of fair value accounting. The study examines the implications of fair value accounting for financial analysts and nonprofessional investors. It provides evidence that, even if financial analysts find it challenging to produce accurate forecasts under a fair value regime, nonprofessional investors make larger investments and are more confident with their judgments for fair value firms.

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Appendix

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A: Empirical analysis of financial analysts’ forecasts Table A-1: Distribution of the sample per industry248 Sector Industry group No. TOTAL % 10 Energy 1010 Energy 108 108 4.21% 15 Materials 1510 Materials 238 238 9.28% 20 Industrials 2010 Capital Goods 432 2020 Commercial Services & Supplies 157 2030 Transportation 79 668 26.03% 25 Consumer Discretionary 2510 Automobiles & Components 64 2520 Consumer Durables & Apparel 137 2530 Consumer Services 36 2540 Media 149 2550 Retailing 45 431 16.80% 30 Consumer Staples 3010 Food & Staples Retailing 19 3020 Food, Beverage & Tobacco 83 3030 Household & Personal Products 19 121 4.71% 35 Health Care 3510 Health Care Equipment & Services 69 3520 Pharmaceuticals, Biotechnology & Life Sciences 127 196 7.64% 40 Financials 4020 Diversified Financials 146 4040 Real Estate 165 311 12.12% 45 Information Technology 4510 Software & Services 215 4520 Technology Hardware & Equipment 110 4530 Semiconductors & Semiconductor Equipment 33 358 13.95% 50 Telecommunica-tion Services 5010 Telecommunication Services 40 40 1.56% 55 Utilities 5510 Utilities 95 95 3.70% TOTAL 2,566 2,566 100% 248 Banks and insurance companies are not included in the sample. Therefore, the sector “Financials” contains of the industry groups “Diversified Financials” and “Real Estate” only. 228 Appendix A: Empirical analysis of financial analysts’ forecasts Table A-2: Coefficients of the industry and country control variables for forecast accuracy OLS regression Rank regression Industry controls Pred. sign Model (1) Model (2) Model (3) Model (1) Model (2) Model (3) Energy +/- 0.0066 0.0057 0.0046 0.0225 0.0224 0.0233 Materials +/- -0.0001 0.0006 -0.0011 *** -0.1290 *** -0.1145 *** -0.1289 Commercial...

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