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A Study on the Effect of Fair Value Hierarchy upon Cost of Capital Through the Convergence of Market Risk Management and Audit Quality

시장위험관리와 감사품질의 융합을 통한 공정가치 서열체계의 자본비용에 미치는 영향에 대한 연구

  • Received : 2015.08.31
  • Accepted : 2015.10.20
  • Published : 2015.10.31

Abstract

The data of fair value hierarchy is expected to contain different degree of measurement error, information asymmetry, and information risk by the level of hierarchy. Thus, this study examines how hierarchy of fair value discriminately influences on companies' cost of capital. Through regression analysis of corporations listed from 2011 to 2014, it turns out that the regression coefficient of level 1 and 2 of fair value variable vary their rank by cost of capital types, while level 3 contains the highest regression coefficient for every cost of capital variable. In addition, further study of how the relevance between cost of capital and the fair value hierarchy gets affected by market risk management level and audit quality finds no consistent results. However, by analyzing the effect of coincident interaction through the convergence of market risk management and audit quality, when audit quality and market risk management level are high, the effect of relieving cost of capital of Level 3 gets the highest. In conclusion, fair value hierarchy data seems to affect discriminately on cost of capital by involved information risk, and the information risk could decrease by the level of market risk management and audit quality.

Keywords

Fair Value;Hierarchy;Cost of Capital;Convergence;Market Risk Management;Audit Quality

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Acknowledgement

Supported by : 청주대학교