Academics’ debate is usually referred to financial instruments and framed within the
agency theory, supposing information asymmetry between market participants and the
existence of perfect versus imperfect market conditions. Barth and Landsman (1995)
concluded that in perfect and complete markets a fair value accounting-based balance
sheet reflects all value-relevant information. However, in more realistic market settings
management discretion applied to fair valuation can detract from balance sheet and
income statement relevance. Watts (2003) argues that fair valuationis subjectto more
manipulation and, accordingly, is a poorer measure of worth and performance.