The Relationship Between Fair Value Option and Earnings Management

• Main Authors: CHEN, HUAI-CHUN, 陳淮群
• Other Authors: CHEN, WEI-TZU
• Format: Others
• Language: zh-TW
• Published: 2018
• Online Access: http://ndltd.ncl.edu.tw/handle/a89tum

碩士 === 國立臺北大學 === 會計學系 === 106 === Past research had focused on how financial institutions conduct earnings management through loan loss provision (LLP). With the adoption of the FAS NO.159, the fair value option (FVO) has also been pointed out by many studies as a tool that may be used by financial institutions for earnings management. Therefore, this paper explores the relationship between LLP and FVO when financial institutions conduct earnings management behavior for earnings smoothing purpose. After the financial crisis, the stricter disclosure requirements may reduce the incentive of financial institutions to manage earnings through fair value options. In addition, the financial assets/liabilities applied for the fair value option can be classified as Level 1, Level 2 and Level 3. According to past research, the value relevance of the level 3 financial assets/liabilities is much lower than the level 1 and the level 2 financial assets/liabilities. Thereby, this study will explore whether financial institutions will still use FVO for earnings management purpose after the financial crisis and its relationship with LLP and ascertain whether financial institutions mainly use level 3 financial assets/liabilities applied for the fair value option for earnings management and its relationship with LLP. The results of this study show that DLLP is used to substitute for FVOPL in order to conceal the behavior of earnings management. Before the financial crisis. There is a significantly complementary relationship between them to maximize the effect of earnings management. I seems that after the financial crisis, government agencies and Financial Accounting Standard Board (FASB) had effectively strengthened the restrictions on earnings management behavior. However, FVO is not mainly applied through level 3 financial assets/liabilities to achieve earnings management purpose, and its interaction with DLLP is insignificant.