Browse > Article
http://dx.doi.org/10.15207/JKCS.2015.6.5.001

A Study on the Effect of Fair Value Hierarchy upon Cost of Capital Through the Convergence of Market Risk Management and Audit Quality  

Oh, Hyun-Taek (Dep. of Accounting, Cheongju University)
Publication Information
Journal of the Korea Convergence Society / v.6, no.5, 2015 , pp. 1-8 More about this Journal
Abstract
The data of fair value hierarchy is expected to contain different degree of measurement error, information asymmetry, and information risk by the level of hierarchy. Thus, this study examines how hierarchy of fair value discriminately influences on companies' cost of capital. Through regression analysis of corporations listed from 2011 to 2014, it turns out that the regression coefficient of level 1 and 2 of fair value variable vary their rank by cost of capital types, while level 3 contains the highest regression coefficient for every cost of capital variable. In addition, further study of how the relevance between cost of capital and the fair value hierarchy gets affected by market risk management level and audit quality finds no consistent results. However, by analyzing the effect of coincident interaction through the convergence of market risk management and audit quality, when audit quality and market risk management level are high, the effect of relieving cost of capital of Level 3 gets the highest. In conclusion, fair value hierarchy data seems to affect discriminately on cost of capital by involved information risk, and the information risk could decrease by the level of market risk management and audit quality.
Keywords
Fair Value; Hierarchy; Cost of Capital; Convergence; Market Risk Management; Audit Quality;
Citations & Related Records
연도 인용수 순위
  • Reference
1 Riedl, E.J., Serafeim, G., "Information risk and fair value: An examination of equity beta and bid-ask spreads," Journal of Accounting Research, Vol. 49, No. 4, pp. 1083-1122, 2011.   DOI
2 Easley, D., M.. O'Hara, "Information and the Cost of Capital", Journal of Finance, Vol. 59, Vol. 4, pp. 1553-1583, 2004.   DOI
3 Lambert, R., C. Leuz, R. Verrecchia, "Information Asymmetry, Information Precision, and the Cost of Capital", Review of Finance, Vol. 16, No. 1, pp. 1-29, 2012.   DOI
4 Diamond, D., and R. Verrecchia, "Disclosure, Liquidity, and the Cost of Capital", Journal of Finance, Vol. 46, No. 4, pp. 1325-1359, 1991.   DOI
5 Botosan, C. A., "Disclosure Level and the Cost of Equity Capital", Accounting Review, Vol. 72, No. 3, pp. 323-349, 1997.
6 A-Young Lee, Sung-Bin Chun, Sang-Su Park, "The Effect of Unfaithful Disclosure on the Cost of Debt", Korean Accounting Review, Vol. 33, No. 1, pp. 127-158, 2008.
7 Min-Young Lee, "Voluntary Disclosure, Earnings Quality, and Cost of Capital", Doctoral Dissertation, Hanyang University, 2009.
8 Minjung Kang, Ho-Young Lee, "The Role of Fair Value, Hierarchy and Risk Management Level on Forward Looking Information: Focusing on the Financial Instruments", Korean Accounting Review, Vol. 39, No. 4, pp. 349-394, 2014.
9 Song, C.H., W.B. Thomas, H. Yi, "Value Relevance of FAS No.157 Fair Value Hierarchy Information and the Impact of Corporate Governance Mechanisms", The Accounting Review, Vol. 85, No. 4, pp. 1375-1410, 2010.   DOI
10 Kolev, K., "Do Investors Perceive Marking-to- Model as Marking-to-Myth? Early Evidence from FAS 157 Disclosure", SSRN working paper, 2009
11 Leuz, C., C. Schrand, "Disclosure and the Cost of Capital: Evidence from Firms' Responses to the Enron Shock", NBER working paper, 2009.
12 Chacchang Im, Giseok Nam, Kijung Eom, "Assessing the Impact of Information Risk on Cost of Capital Using the Fair Value Disclosure", KAAKASBA summer Conference, pp. 5294-5331, 2011.
13 Eun-Ju Kim, Yong-Eon Cho, "Relevance of Tax Avoidance and Audit Quality and Cost of Debt Capital", Korea International Accounting Review, Vol. 44, No. 8, pp. 279-300, 2012.
14 Hyunho Shin, "The Effects of Audit Quality on the Cost of Debt and Firm Value", Master's Thesis, KAIST, 2014.
15 Eun-Ju Kim, Mi-Young Park, "Effects of Tax Avoidance and Audit Quality on Cost of Equity Capital", Tax Accounting Research, Vol. 32, No. 2, pp. 161-183, 2012.