Fair value measurements of financial assets and audit fees for the non-banking industry: The role of corporate governance
Authors: Yi-Hui Tai
Journal: Corporate Management Review. Jun. 2023, 43(1): 97-135
Keywords: Fair-valued measurement, audit fee, corporate governance, non- banking industry, fair value hierarchy
Abstract:
This research takes non-banking listed companies in Taiwan over the period 2016-2021 as samples to investigate the correlation between fair-valued measurements of financial assets and audit fees and to further explore the moderating effects of corporate governance performance. The paper documents that the proportion of total fair-valued financial assets is negatively associated with audit fees, but that the proportion of financial assets that are fair-valued using Level 3 inputs is positively associated with audit fees. In addition, my study finds that corporate governance performance influences audit fees, but it has no impact on the association between the proportion of total fair-valued financial assets and audit fees. Additional analyses find that (1) the proportion of financial assets that are fair-valued using Level 1 inputs is negatively associated with audit fees, however, the sum of the proportion of financial assets that are fair-valued using Level 2 and Level 3 inputs is positively associated with audit fees; (2) after deleting observations without fair-valued financial assets, the results mostly match my above tests; (3) after changing several variables in the equations, findings are consistent with prior results; and (4) separating my sample period into two sub- periods (pre-COVID-19 (2016 to 2019) and post-COVID-19 (2020 to 2021)), the empirical results have a few inconsistent findings between each other. Finally, I employ the fixed-effect model to mitigate the endogeneity that arises from omitted unobservable variables, and all findings are consistent with my main tests. The findings herein complement the literature and offer implications for adopting fair value accounting.