Suitability and Relevance of the Fair Value Measurement Under IFRS 13 Vs Historical Cost: Application to the Lebanese Banking Sector

What is it about?

Purpose - The aim of this research is to discover the opinions of the Lebanese banks regarding the relevance of the fair value method. Furthermore, this study will provide an additional insight into the suitability of the fair value measurement in a developing economy like that of Lebanon, and in an absence of an active financial market. However, the results in the Lebanese setting may differ from the US and European environments. Design/ Methodology/ Approach – The goal of this investigation is to confront the international debates on the relevance of fair value with the Lebanese banking sector opinions. For the benefit of this deductive research, a quantitative methodology was solely employed. Using a questionnaire of 14 questions measured with a Likert Scale (pre-coded questions), the data was collected through a combination of some self-administered surveys, and some in person questionnaire-style interviews. The collected data was subjected to statistical tests using SPSS software. Findings - The main results showed that Lebanese banks consider the fair value measurement under IFRS 13 relevant compared to the traditional historical cost method. Nevertheless, the relevance of fair value in times of financial turbulence differs from its relevance in times of financial stability. Research limitations/implications – The exploratory feature of this survey generated conclusions that are general in nature, but nonetheless form a basis for future research. This study was bounded by a fairly small sample, due to the relatively limited size of the Lebanese banking sector, the non-cooperation of the Lebanese banks chief accountants, the weakening of the intervention of the Lebanese banks in the financial markets, and the restriction of the use of the financial instruments by the Lebanese Central Bank. Practical implications – When banks become more aware about the importance of the switch to the fair value method compared to the historical cost, they will seek to enhance their maturity level in this vein and to imitate international banks’ financial disclosures. On the other hand, the international debates regarding the introduction of excess volatility in the financial statements during periods of crisis will lead Lebanese banks to pay more attention to this flaw of the fair value. Social implications – fair value injects into financial statements contemporary and relevant values which represents a useful information for the investors’ decision-making. Negative social impacts of the fair value appears on financial stability especially during periods of financial crisis. Originality/Value - This study presents a non-traditional examination of the research on the fair value relevance. Bearing in mind the limitedness of research on this topic in Lebanon, this paper offers a significant contribution to the field. Upcoming studies will build on this analysis with the help of a larger sample.

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