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Recognition versus disclosure of fair values

  • This paper examines pricing differences across recognized and disclosed fair values. We build on prior literature by examining two theoretical causes of such differences: lower reliability of the disclosed information, and/or investors’ higher related information processing costs. We examine European real estate firms reporting under International Financial Reporting Standards (IFRS), which require that fair values for investment properties, our sample firms’ key operating asset, either be recognized on the balance sheet or disclosed in the footnotes. Consistent with prior research, we predict and find a lower association between equity prices and disclosed relative to recognized investment property fair values, reflecting a discount assigned to disclosed fair values. We then predict and find that this discount is mitigated by lower information processing costs (proxied via high analyst following), and some support that it is also mitigated by higher reliability (proxied via use of external appraisals). These latter results are documented using subsample analyses to test one attribute (either information processing costs or reliability) while holding the other constant. Overall, these findings are consistent with fair value reliability and information processing costs providing complementary explanations for observed pricing discounts assessed on disclosed accounting amounts.

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Metadaten
Author:Maximilian A. Müller, Eddie Riedl, Thorsten Sellhorn
URN:urn:nbn:de:hbz:992-opus4-6774
DOI:https://doi.org/10.2139/ssrn.2362362
Series (Serial Number):FAccT Center Working Paper Series (05/2012)
Publisher:WHU - Otto Beisheim School of Management
Place of publication:Vallendar
Document Type:Working Paper
Language:English
Date of Publication (online):2018/06/18
Date of first Publication:2013/12/04
Release Date:2018/06/18
Tag:Anerkennung; Anlageimmobilien; Ausschluß; IFRS; Verkehrswert
Disclosure; Fair value; IFRS; Investment property; Recognition
Edition:January 2015
Page Number:54
Institutes:WHU Centers / WHU Financial Accounting & Tax Center (FAccT Center)
JEL-Classification:L Industrial Organization / L8 Industry Studies: Services / L85 Real Estate Services
M Business Administration and Business Economics; Marketing; Accounting / M4 Accounting and Auditing / M40 General
M Business Administration and Business Economics; Marketing; Accounting / M4 Accounting and Auditing / M41 Accounting
Licence (German):Copyright for this publication