Abstract
The purpose of this article is to investigate the impact of executive compensation and its relation to the value relevance of fair value accounting. Using a sample of companies from 2007 to 2016 and based on a modified model of Ohlson (1995). We find that the bonus intensity in executive compensation provides a positive incentive for managers to disclose their insider information in financial reporting, which results in a greater value relevance of fair value information. The results also show that this positive motivation only applies to Level 2 fair values, where there is still a comparative market price. However, when there is no information about the market price of an item reported in the financial statements, managers tend to manipulate the valuation of Level 3 fair value inputs, which results in less value relevance of fair value accounting. The results help to improve the knowledge of management incentives in the determination of valuation in financial reporting. The findings also shed light on the conditions of decision usefulness of fair value accounting. This study contributes to the literature by providing evidence of the moderating role that executive compensation plays in the usefulness of fair value accounting.© 2018, Facultad de Contaduría y Administración, Universidad Nacional Autónoma de México. All rights reserved. Publication of the article implies full assignment of property rights (copyright) in Journal of Contaduría y Administración. The publication mreserves the right to total or partial reproduction of the work in other print, electronic or any other alternative means, but always recognizing its responsibility.
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