Value Relevance of Fair Value Measurement and Stock Price Predictability: Incremental Effect and Synergetic Analysis of Listed Banks in Ghana
Keywords:fair value, stock price, incremental effect, synergetic effect, olhson model, horizontal incremental value relevance approach (HIV Approach)
This paper investigated value relevance of fair value using the stock prices of listed banks in Ghana as benchmark. The paper focused on listed banks in Ghana with data span of 2008 to 2018 from audited financial statements. Olshon’s model and Horizontal Incremental VR Approach (HIV Approach) were used to conduct the investigation. The findings revealed a weak significant mean difference between book value of equity at fair value and historical cost. However, regarding earnings, it was further revealed that there is a strong significant difference between earnings at fair value and historical cost. It was also found that fair value are relevant at both balance sheet level and income level. The findings also showed that fair value moves closer to income statement level (earnings) than the balance sheet level (book value of equity). Delinking true fair value’s value relevance using HIV Approach also confirmed that fair value brings both book value of equity and earnings closer to economic reality. The implication is that fair value can still be relevant in weak market economy like Ghana.