Discount rate behaviour in fair value reporting

Despite the importance of reliable financial information to financial professionals, little is known in the behavioural finance literature about the opportunistic behaviour in discount rate selection for fair value measurement, and its adverse impact on the reliability of financial information. This short communication contributes to the literature on discount rate behaviour by revealing the potential opportunistic behaviour in the selection of discount rates. Using biological assets where the market price is usually not available, I show that a wide range of discount rates are applied for estimating fair values, but the range of rates used does not seem to be related to economic factors. Further, firms that report both larger fair value gains and larger fair value losses use higher discount rates suggesting that the discretion available to managers is used opportunistically in some cases. To gain more insights into behavioural aspects of discount rate selection, I also suggest a set of research questions pertaining to discount rate behaviour. This helps to form the agenda for future research in this area.