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http://ssrn.com/abstract=1265065
 
 

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Mandatory Fair Value Accounting and Information Asymmetry:
Evidence from the European Real Estate Industry


Karl A. Muller


Pennsylvania State University - Department of Accounting

Edward J. Riedl


Boston University - School of Management

Thorsten Sellhorn


Ludwig-Maximilians-Universitaet (LMU) Munich

February 28, 2011

Management Science, Forthcoming

Abstract:     
We examine the effects of mandating the provision of fair value information for long-lived tangible assets on firms’ information asymmetry. Specifically, we investigate whether European real estate firms’ compulsory adoption of International Accounting Standard 40 - Investment Property (IAS 40), which mandated the provision of investment property fair values in 2005, resulted in reduced information asymmetry across market participants. Using as a control group firms that voluntarily provided these fair values prior to the mandatory adoption of IAS 40, we find that mandatory adoption firms exhibit a larger decline in information asymmetry, as reflected in lower bid-ask spreads. However, we also find that mandatory adoption firms continue to have higher information asymmetry than voluntary adoption firms, which appears partially attributable to the lower reliability of fair values reported by the mandatory adoption firms. Together, this evidence adds to the debate on fair value accounting by demonstrating that common adoption of fair value, even for long-lived tangible assets, under a mandatory reporting regime can reduce, but not necessarily eliminate, information asymmetry differences across firms.

Number of Pages in PDF File: 44

Keywords: Fair value, disclosure, IFRS, information asymmetry, investment property

JEL Classification: M41, M44, M47, D82, L85

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Date posted: September 10, 2008 ; Last revised: June 13, 2011

Suggested Citation

Muller, Karl A. and Riedl, Edward J. and Sellhorn, Thorsten, Mandatory Fair Value Accounting and Information Asymmetry: Evidence from the European Real Estate Industry (February 28, 2011). Management Science, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1265065

Contact Information

Karl A. Muller
Pennsylvania State University - Department of Accounting ( email )
Smeal College of Business
384 Business Building
University Park, PA 16802-3306
United States
814-865-0202 (Phone)
814-863-8393 (Fax)
Edward J. Riedl (Contact Author)
Boston University - School of Management ( email )
595 Commonwealth Avenue
Boston, MA MA 02215
United States
617-353-2317 (Phone)
Thorsten Sellhorn
Ludwig-Maximilians-Universitaet (LMU) Munich ( email )
Ludwigstr. 28 RG IV
Munich, Bavaria 80539
Germany
+49(0)89-21806264 (Phone)
+49(0)89-21806327 (Fax)
HOME PAGE: http://www.rwp.bwl.uni-muenchen.de/personen/professoren/sellhorn/index.html
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