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Investment property: Fair value or cost model? Recent evidence from the application of IAS 40 in Europe

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  • Olante, Maria Elena
  • Lassini, Ugo

Abstract

The purpose of this study is to shed light on the management choice between fair value and cost for investment property under IAS 40 in Europe. Using a multi-motivation approach, we explore what drives this choice across countries and across industries after ten years have passed from the first adoption of IAS 40. Following the theoretical framework developed by the accounting choice theory, we hypothesize that there are several classes of reasons possibly leading managers to commit to fair value: contractual efficiency motives, asset pricing incentives tied to information asymmetries, country institutional factors, and industry factors. In order to test these hypotheses, we select a sample of publicly-traded firms operating in the real estate, manufacturing and banking industries, and located in nine European countries where national pre-IFRS standards mandated either fair value or historical cost for investment property. We test our hypotheses running our model both on the full sample (real estate, manufacturing, and banking) and on a subsample that excludes real estate firms.

Suggested Citation

  • Olante, Maria Elena & Lassini, Ugo, 2022. "Investment property: Fair value or cost model? Recent evidence from the application of IAS 40 in Europe," Advances in accounting, Elsevier, vol. 56(C).
    • Handle: RePEc:eee:advacc:v:56:y:2022:i:c:s0882611021000560
    DOI: 10.1016/j.adiac.2021.100568
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    More about this item

    Keywords

    Investment property; IAS 40; Fair value; Accounting choice;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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