Abstract:
BACKGROUND: Prior literature established that different fair value levels disclosed in terms of
the International Financial Reporting Standards (IFRS) 7 are value relevant.
SETTING: This study investigates the market pricing of the different fair value levels, as well as
the market reaction towards the fair value hierarchy levels reported in terms of IFRS 7.
AIM: Prior research found inconsistencies in the market pricing of fair value levels. This study
seeks to contribute to this debate. It also focuses on the period after comprehensive guidance
on how to measure fair value levels was issued.
METHODS: Data from 2009 to 2015 were collected from the financial sector companies listed on
the Johannesburg Stock Exchange. The study uses the statement of financial position and the
Ohlson model to investigate the market pricing of the different fair value levels disclosed in
terms of IFRS 7.
RESULTS: The results of the study show that the fair value of assets level 1, 2 and 3, as well as
the fair value of liabilities level 3 are value relevant while the fair value of liabilities level 1 and
2 are not value relevant. Furthermore, the market pricing of level 2 and 3 fair value assets and
liabilities is not lower for companies with a high debt equity ratio than for companies with a
low debt equity ratio. The results further reveal that the pricing of level 3 assets improved with
the introduction of IFRS 13 and post the 2008 financial crisis.
CONCLUSION: Fair value assets across different hierarchy levels are value relevant. On the
contrary, fair value liabilities are priced differently across the different hierarchy levels.
