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Level 3 fair values for financial instruments: relevance or reliability? Evidence from a conjoint analysis

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  • Stephanie Jana
  • Martin Schmidt

Abstract

Using conjoint analysis, we examine the extent to which relevance and reliability contribute to the decision usefulness of level 3 fair value measurements for financial instruments. Relevance and reliability are the two fundamental qualitative characteristics for providing decision useful information as the primary objective of financial reporting. Participants ranked, by decision usefulness, five different techniques for determining the essential parameters to estimate a level 3 fair value for a financial instrument. The techniques have different combinations that trade off relevance and reliability. Our main analysis uses 202 MSc and MBA students enrolled in financial and managerial accounting courses. We find that relevance contributes to decision usefulness more than reliability. We find similar results with smaller samples of financial analysts and auditors. The findings have implications for preparers, academics, and standard-setters.

Suggested Citation

  • Stephanie Jana & Martin Schmidt, 2026. "Level 3 fair values for financial instruments: relevance or reliability? Evidence from a conjoint analysis," Accounting and Business Research, Taylor & Francis Journals, vol. 56(3), pages 492-520, April.
    • Handle: RePEc:taf:acctbr:v:56:y:2026:i:3:p:492-520
    DOI: 10.1080/00014788.2025.2488925
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