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

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Author Info
Karl A. Muller () (Pennsylvania State University - Department of Accounting)
Edward J. Riedl () (Harvard Business School, Accounting and Management Unit)
Thorsten Sellhorn () (Ruhr-Universität Bochum)

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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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Paper provided by Harvard Business School in its series Harvard Business School Working Papers with number 09-033.

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Length: 43 pages
Date of creation: Aug 2008
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Handle: RePEc:hbs:wpaper:09-033

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Related research
Keywords: Fair value; disclosure; IFRS; information asymmetry;

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