Valuation Differences of Level 1, Level 2 and Level 3 Financial Instruments

This research provides thorough discussion as to how financial assets and liabilities affect market value of equity. It starts with a historical informed discourse of conceptual and procedural issues related to the use of the fair value measurement attribute in financial reporting. Next chapter provides a brief history of the fair value measurement attribute and its evolution over the last few decades and then continues with description of existing financial assets fair value hierarchy. As the next step, with the use of regression analysis of 11 global systematically important banks’ financial assets and liabilities author explains why and to what extent financial assets are priced differently from their values on the statement of financial position. Also , it is thoroughly explained why financial liabilities have slightly different coefficients compared to financial assets. Sample contains data on financial position of top eleven systematically important banks’ annual reports. Research tests whether relevance of Level 1, Level 2 and level 3 financial assets fair value measurements do significantly vary in value.