Value relevance of fair value estimates - The impact of ownership structures and increased disclosures

Abstract: This study investigates the effects ownership structures and actions by regulatory bodies (in the form of increased disclosures) have on investors’ perceptions of fair value estimates. By taking a value relevance approach, the results from this study, generated from a sample of 223 European banks applying IFRS during a period between 2011-2014, indicate that all levels in the fair value hierarchy are value relevant. Further, the results suggest that investors seem to distinguish mark-to-market (level 1) and mark-to-model assets (levels 2 and 3) and perceive mark-to-market assets as more value relevant. We find that the ownership structure seems to have a significant effect on the value relevance of level 3 net assets; an increased ownership concentration implies a negative association between the fair values and the market value while the opposite condition prevails when increasing the presence of institutional owners. In contrast, the effect of increased disclosures on such securities cannot be demonstrated. We contribute with an understanding of the link between financing reporting and how this information is priced by the capital market. By examining a novel dimension of corporate governance, we yield new insights to the existing literature within this research field.