THE EFFECT OF CORPORATE GOVERNANCE MECHANISMS ON FAIR VALUE ACCOUNTING MEASUREMENTS
CASE STUDY FROM UK BANKING COMPANIES
Keywords:
Corporate Governance, Fair Value Accounting, Level 3 Inputs, Audit Committee, UK Banking SectorAbstract
This paper examines how corporate governance mechanisms impact the fair value accounting measurement, using the UK-listed banking and financial corporations. The study examines the impact of managerial ownership, institutional ownership, non-executive directors and the size of an audit committee on the application of Level 3 fair value inputs - those that involve high levels of managerial judgment and estimation. The quantitative research design and multiple regression analysis based on 11 firms in three years (2020-2022) was used to investigate how the variables of governance are related to opportunistic financial reporting practices. The results show that managerial ownership is significantly positively correlated with the level 3 fair value inputs, which may imply that managerial discretion exists in valuation practices. On the other hand, the negative relationships between Level 3 inputs and non-executive directors and larger audit committees indicate a strong negative correlation, meaning that good governance oversight prevents opportunistic behavior and increases reporting integrity. The institutional ownership, however, does not exhibit any substantial impact on fair value practices. The research adds to the existing body of literature on the interaction between corporate governance and fair value accounting and provides empirical evidence on the role of governance structure in determining transparency and accountability of financial reporting. The findings highlight the need to strengthen the governance structures to bring reliability and ethical provisions to the UK financial sector.
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