Consequences of Voluntary and Mandatory Fair Value Accounting: Evidence Surrounding IFRS Adoption in the EU Real Estate Industry

Karl A. Muller · Edward J. Riedl · Thorsten Sellhorn

32 citations0/0 files storedRePEc: Research Papers in Economics

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Auditing, Earnings Management, Governance Accounting Theory and Financial Reporting Financial Reporting and XBRL

Abstract

We examine the causes and consequences of European real estate firms' decisions to provide investment property fair values prior to the required disclosure of this information under International Financial Reporting Standards (IFRS). We find evidence that investor demand for fair value information-reflected in more dispersed ownership-and a firm's commitment to transparency increase the likelihood of providing fair values prior to their required provision under International Accounting Standard 40 - Investment Property. We also find that firms not providing these fair values face higher information asymmetry. However, we fail to find that the relatively higher information asymmetry was reduced following mandatory adoption of IFRS. Rather, we find that differences in information asymmetry largely remain. Taken together, this evidence suggests that common adoption of fair value accounting due to the mandatory adoption of IFRS does not necessarily level the informational playing field.

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References

1998Law and Finance 2001Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature 2000The effect of international institutional factors on properties of accounting earnings 2008Mandatory IFRS Reporting around the World: Early Evidence on the Economic Consequences 1999The Economic Consequences of Increased Disclosure 2003Incentives versus standards: properties of accounting income in four East Asian countries 2001Empirical research on accounting choice 2006The Importance of Reporting Incentives: Earnings Management in European Private and Public Firms

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2015Corporate philanthropy in the US stock market: Evidence on corporate governance, value relevance and earnings manipulation 2015National institutional factors and IFRS Implementation in Europe 2017The predictive ability of investment property fair value adjustments under IFRS and the role of accounting conservatism

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