Fair value accounting and the cost of equity capital of Asian banks

The cost of equity is a measure of the required return by investors. It is desirable for firms, especially banks, to lower the cost of equity. There are a number of factors related to the quality of information disclosed that could influence the cost of equity. The accounting regulators aim to impro...

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Main Authors:	Ashwag Dignah, Radziah Abdul Latiff, Zulkefly Abdul Karim, Aisyah Abdul-Rahman
Format:	Article
Language:	English
Published:	Penerbit Universiti Kebangsaan Malaysia 2016
Online Access:	http://journalarticle.ukm.my/10828/ http://journalarticle.ukm.my/10828/ http://journalarticle.ukm.my/10828/1/16215-48609-1-PB.pdf

id	ukm-10828
recordtype	eprints
spelling	ukm-108282017-10-11T08:22:10Z http://journalarticle.ukm.my/10828/ Fair value accounting and the cost of equity capital of Asian banks Ashwag Dignah, Radziah Abdul Latiff, Zulkefly Abdul Karim, Aisyah Abdul-Rahman, The cost of equity is a measure of the required return by investors. It is desirable for firms, especially banks, to lower the cost of equity. There are a number of factors related to the quality of information disclosed that could influence the cost of equity. The accounting regulators aim to improve the quality of information by requiring assets to be valued at fair value. However the application of fair value accounting potentially increases information asymmetry, especially if fair value is estimated and subjected to the judgment of the preparers of financial statements. This asymmetric information problem potentially lowers the information quality and increases investors’ estimation risk and thus influences the cost of equity capital. Therefore, this research investigates the effect of fair value accounting on the cost of equity capital for a sample of Asian banks since banks hold a relatively larger proportion of assets at fair value. Using the generalized method of moment model for dynamic panel data, this research finds significant and positive relationship between assets at fair value and the cost of equity. The results found are similar for both quoted and unquoted assets. Thus although to regulators, fair value accounting provide relevant and timely information to investors, assets at fair value are perceived to be risky and as a consequence investors require higher returns. Penerbit Universiti Kebangsaan Malaysia 2016 Article PeerReviewed application/pdf en http://journalarticle.ukm.my/10828/1/16215-48609-1-PB.pdf Ashwag Dignah, and Radziah Abdul Latiff, and Zulkefly Abdul Karim, and Aisyah Abdul-Rahman, (2016) Fair value accounting and the cost of equity capital of Asian banks. Jurnal Pengurusan, 48 . pp. 125-135. ISSN 0127-2713 http://ejournal.ukm.my/pengurusan/issue/view/883
repository_type	Digital Repository
institution_category	Local University
institution	Universiti Kebangasaan Malaysia
building	UKM Institutional Repository
collection	Online Access
language	English
description	The cost of equity is a measure of the required return by investors. It is desirable for firms, especially banks, to lower the cost of equity. There are a number of factors related to the quality of information disclosed that could influence the cost of equity. The accounting regulators aim to improve the quality of information by requiring assets to be valued at fair value. However the application of fair value accounting potentially increases information asymmetry, especially if fair value is estimated and subjected to the judgment of the preparers of financial statements. This asymmetric information problem potentially lowers the information quality and increases investors’ estimation risk and thus influences the cost of equity capital. Therefore, this research investigates the effect of fair value accounting on the cost of equity capital for a sample of Asian banks since banks hold a relatively larger proportion of assets at fair value. Using the generalized method of moment model for dynamic panel data, this research finds significant and positive relationship between assets at fair value and the cost of equity. The results found are similar for both quoted and unquoted assets. Thus although to regulators, fair value accounting provide relevant and timely information to investors, assets at fair value are perceived to be risky and as a consequence investors require higher returns.
format	Article
author	Ashwag Dignah, Radziah Abdul Latiff, Zulkefly Abdul Karim, Aisyah Abdul-Rahman,
spellingShingle	Ashwag Dignah, Radziah Abdul Latiff, Zulkefly Abdul Karim, Aisyah Abdul-Rahman, Fair value accounting and the cost of equity capital of Asian banks
author_facet	Ashwag Dignah, Radziah Abdul Latiff, Zulkefly Abdul Karim, Aisyah Abdul-Rahman,
author_sort	Ashwag Dignah,
title	Fair value accounting and the cost of equity capital of Asian banks
title_short	Fair value accounting and the cost of equity capital of Asian banks
title_full	Fair value accounting and the cost of equity capital of Asian banks
title_fullStr	Fair value accounting and the cost of equity capital of Asian banks
title_full_unstemmed	Fair value accounting and the cost of equity capital of Asian banks
title_sort	fair value accounting and the cost of equity capital of asian banks
publisher	Penerbit Universiti Kebangsaan Malaysia
publishDate	2016
url	http://journalarticle.ukm.my/10828/ http://journalarticle.ukm.my/10828/ http://journalarticle.ukm.my/10828/1/16215-48609-1-PB.pdf
first_indexed	2023-09-18T19:58:32Z
last_indexed	2023-09-18T19:58:32Z
_version_	1777406692343939072

Fair value accounting and the cost of equity capital of Asian banks

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