Original Research

Pricing of fair value instruments reported under International Financial Reporting Standards 7: South African setting

Hopewell Hlatshwayo, Mbalenhle Zulu
South African Journal of Economic and Management Sciences | Vol 22, No 1 | a2345 | DOI: https://doi.org/10.4102/sajems.v22i1.2345 | © 2019 Mbalenhle Zulu, Hopewell Hlatshwayo | This work is licensed under CC Attribution 4.0
Submitted: 21 February 2018 | Published: 15 January 2019

About the author(s)

Hopewell Hlatshwayo, College of Economic and Management Sciences, Department of Accounting, University of Pretoria, South Africa
Mbalenhle Zulu, College of Accounting Sciences, Department of Financial Accounting, University of South Africa, South Africa


Background: Prior literature established that different fair value levels disclosed in terms of the International Financial Reporting Standards (IFRS) 7 are value relevant.

Setting: This study investigates the market pricing of the different fair value levels, as well as the market reaction towards the fair value hierarchy levels reported in terms of IFRS 7.

Aim: Prior research found inconsistencies in the market pricing of fair value levels. This study seeks to contribute to this debate. It also focuses on the period after comprehensive guidance on how to measure fair value levels was issued.

Methods: Data from 2009 to 2015 were collected from the financial sector companies listed on the Johannesburg Stock Exchange. The study uses the statement of financial position and the Ohlson model to investigate the market pricing of the different fair value levels disclosed in terms of IFRS 7.

Results: The results of the study show that the fair value of assets level 1, 2 and 3, as well as the fair value of liabilities level 3 are value relevant while the fair value of liabilities level 1 and 2 are not value relevant. Furthermore, the market pricing of level 2 and 3 fair value assets and liabilities is not lower for companies with a high debt equity ratio than for companies with a low debt equity ratio. The results further reveal that the pricing of level 3 assets improved with the introduction of IFRS 13 and post the 2008 financial crisis.

Conclusion: Fair value assets across different hierarchy levels are value relevant. On the contrary, fair value liabilities are priced differently across the different hierarchy levels.


fair value levels; IFRS 7; Johannesburg Stock Exchange (JSE); fair value hierarchy; IFRS 13


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