The predictive value of bank fair values: evidence from ASEAN
Dwianto Mukhtar Latif- Isnalita

Universitas Airlangga

Abstract

Purpose - This study aims to examine the predictive value of the fair value adjustment contained in other comprehensive income (OCI). In particular, the test was conducted to see the ability of OCI to predict the next 1 and 2 years of the company^s performance as measured using pre-tax ROA.
Design/methodology/approach - Using a sample of banking industries registered in ASEAN countries, this study tested the OLS regression with a sample size of 805 firm-years for predictions of 1 year ahead and 690 firm-years for predictions of 2 years into the future.
Findings - The results showed that the fair value adjustment contained in the OCI proved to have predictive value for the next 1 and 2 years. Furthermore, tests based on the classification of fair value levels, show that fair value levels 1 and 2 have more predictive value than fair value level 3. Overall, these results support the IASB and IASB claims that fair value accounting meets financial reporting objectives by providing information that is useful in decision making.
Originality/value - To our knowledge, this is the first work to study the predictive value of using fair value contained in other comprehensive income in financial statements.

Keywords: Fair value, Other comprehensive income, Predictive value

Topic: Financial accounting