Relevance, reliability and restricted security fair values: a look at investment trusts

Abstract

Purpose – The purpose of this study is to assess the pricing effects of financial reporting decision usefulness in terms of its constituent elements of relevance and reliability. Although it has long been intuitively appealing to believe in the decision usefulness of more relevant and reliable disclosures, they have been troublesome to demonstrate empirically. The mixed results have often been attributed to the richness of operating company settings.Design/methodology/approach – This study addresses that problem by using 363 firm years of data from US market‐priced mutual funds (termed closed end funds in some countries and investment trusts in others), whose assets are comprised almost entirely of investment securities.Findings – The results are consistent with the principal hypotheses – both relevance and reliability are valued by the market.Practical implications – Overall, these findings provide a basis not only for reconciling prior, conflicting results, but in adding to our understanding of how disc...