Mechelli Alessandro, Sforza Vincenzo, Stefanoni Alessandra, Cimini Riccardo / Financial Reporting / 2-2018

This paper investigates the value relevance of the fair valur hierarchy disclosed for financial instruments through a sample of 97 financial entities listed over the period 2011-2016 i the stock markets of 23 Eurpoean countries. Its main objectives are threefold. First, by analysing the European setting, the paper means to study the value relevance of the fair value hierarchy to judge the choice of the International Accounting Standard Board (IASB) to extend the disclosure of the hierarchy to all the assets and liabilities. Second, the paper aims to evaluate the choice of abandning management intent as a criterion for the classification and measurement of financial instruments investigating the effect that such an intent has on the value relevance of the fair value hierarchy. Finally, by studying the effect that exposure to risks has on the value relevance of the fair value hierarchical levels, the paper plans to investigate the implications that the disclosure of the hierarchy could have on the rules of Basel 3 capital adequacy. Forumulating three different research hypotheses, the findings validate them prviding evidence that the value relevance of fair value measurement depends on the source of inputs used to estimate fair value and that both management intent and the risk intensity of the asset book only affect the value relevance of the less reliable fair value estimates. These results are useful for standard setters and regulators. Actually, for the investors decisions, they suggest the importance of disclosing the fair value hierarchy for all the assets and liabilities as required by IFRS 13, as well as teh advantage of replacing in IFRS 9 the management intent criterion.