Determinants of Fair Value Financial Instrument and Share-Based Payment Disclosure Patterns of Australian Listed Firms

Meng Wei
Curtin University of Technology
Australia

Grantley Taylor
Curtin University of Technology
Australia

Abstract:
This paper investigates the extent of mandatory fair value financial instrument disclosures and fair value share-based payment disclosures within the annual reports of the top 100 Australian listed companies. Two separate indices were constructed to measure fair value financial instrument and share-based payment disclosures, each of which comprises twelve mandatory fair value disclosure items. The extent of fair value disclosures was measured in the first full year annual report prepared in accordance with the International Financial Reporting Standards (IFRS). Fair value disclosures were related to firm specific variables to offer insights into managerial disclosure incentives. Agency theory tenets provided an ideal theoretical framework to account for the variability in disclosure patterns and their relation to firm specific variables. Pearson correlation coefficients are positive and statistically significant between the strength of corporate governance structure, leverage and fair value financial instrument disclosures. Mean fair value financial instrument disclosures and fair value share-based payment disclosures are 49.17% and 65.70% respectively. Typically, information relating to fair value methodology, valuation techniques, significant assumptions and quantification of fair value changes in respect of financial instrument and share based payments. Considerably less information relating to fair valuation source and valuation inputs were disclosed. The results of regression analysis demonstrate that internationalisation is a factor which is significantly and positively associated with fair value share-based payment disclosure patterns and the strength of corporate governance structure and leverage are positive and significantly associated with fair value financial instrument disclosure patterns. This paper contributes to an understanding of the extent and rationale behind Australian listed firms’ fair value disclosure practices.