Recognition versus Disclosure: Evidence from Fair Value of Investment Property

59 Pages Posted: 9 Dec 2013 Last revised: 9 Nov 2015

See all articles by Doron Israeli

Doron Israeli

IDC Herzliya - Arison School of Business

Date Written: March 14, 2015


The application of International Accounting Standard (IAS) 40, Investment Property, in the European Union created a unique setting to study the implications of a decision to recognize versus disclose financial statements’ items because in this setting recognized and disclosed investment-property-related amounts share a common measurement base, i.e., fair value. I utilize this setting to (1) explore factors associated with a firm’s choice to recognize versus disclose fair values of investment properties, (2) test whether recognized and disclosed amounts are valued equally by equity investors, and (3) determine whether these amounts exhibit equivalent associations with future financial outcomes. To correct for self-selection concerns and assure I compare analogous amounts, I develop a selection model and construct investment-property-related amounts that differ only in whether their components are recognized or disclosed. I find that (1) contractual and asset pricing incentives help explain the recognition versus disclosure choice, (2) investors place smaller valuation weights on disclosed amounts, and (3) recognized and disclosed amounts exhibit statistically equivalent associations with future changes in net rental income and cash flows from operations. Taken together, the evidence suggests that managers are opportunistic in making the recognition versus disclosure choice and that even when recognized and disclosed amounts share an equivalent measurement base and are equally relevant for future financial outcomes, investors weight disclosed information less heavily in determining a firm’s value.

Keywords: Recognition versus disclosure; Fair value of investment property; Analogous amounts; Valuation weights; Value relevance

JEL Classification: G14, G30, M41

Suggested Citation

Israeli, Doron, Recognition versus Disclosure: Evidence from Fair Value of Investment Property (March 14, 2015). Review of Accounting Studies, Vol. 20, Pages 1457-1503, 2015. Available at SSRN: or

Doron Israeli (Contact Author)

IDC Herzliya - Arison School of Business ( email )

P.O. Box 167
Herzliya, 46150
+972 9 952 7673 (Phone)

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