Authors : Chaechang Im and Giseok Nam
Abstract: This study attempts to discover whether information risk of fair value affects a firm’s crash risk. We assume that the information risk of levels 2 and 3 is likely to be positively related to a firm’s crash risk. The results show that information risk is related to increasing crash risk. In addition, we suggest that a firm’s governance system affects the production process of fair value hierarchy information. We argue that this effect is likely to decrease a firm’s crash risk. Our findings are significant in that we evaluate the usefulness of the fair value accounting system directly or indirectly; we identify the effect of the expanded fair value disclosure since, the adoption of IFRS in 2011, we show that a firm’s information asymmetry is another factor that affects its crash risk. Opponents of fair value disclosure argue that the expanded fair value measurement derives more information asymmetry or uncertainty due to the manager’s discretion in handling the value of the firm’s assets and liabilities. On the other hand, supporters of fair value disclosure suggest that fair value disclosure helps to decrease information asymmetry since, the disclosure transfers ample intrinsic information of the firm to their stakeholders. Our disposition is that if level hierarchy disclosure is manipulated by the manager’s discretion, the information asymmetry that exists in the level hierarchy is likely to affect the firm’s crash risk.
Chaechang Im and Giseok Nam, 2016. The Impact of the Fair Value Evaluation Risk on Crash Risks in the Korean Stock Market. The Social Sciences, 11: 1452-1458.