Fair Value Measurement for Long-Lived Operating Assets: Research Evidence

76 Pages Posted: 26 Jun 2017 Last revised: 10 Aug 2018

See all articles by Thorsten Sellhorn

Thorsten Sellhorn

Ludwig-Maximilians-Universitaet (LMU) Munich

Christian Stier

WHU - Otto Beisheim School of Management

Date Written: August 09, 2018

Abstract

This paper reviews research evidence on the usefulness of fair value measurement of long-lived operating assets for financial reporting. Although economically material, these assets have been sidelined in the current fair value debate that largely centers on financial assets, from which operating assets differ in important respects. Our review provides several insights. First, fair value measurement is pervasive for investment property, while nearly nonexistent for PP&E and intangible assets. Second, external fair value appraisers help enhance the decision usefulness of fair values. Third, the determinants of fair-value-related reporting choices vary by context and are not yet well-understood. Fourth, fair value measurement is largely useful when it comes to the valuation role of financial reporting, but this usefulness varies across recognized and disclosed fair values. Fifth, the contracting implications of fair value measurement for long-lived operating assets are severely under-researched. Overall, whereas extant research provides relevant insights, it is derived from diverse settings employing different measures and research designs, and does not yet provide an accumulation of evidence sufficient for final clarity about the determinants and consequences of fair value measurement for long-lived operating assets. Based on this conclusion, we develop several suggestions for future research in this area.

Keywords: fair value, value relevance, contracting, operating assets, economic consequences

JEL Classification: G12, G30, G32, M4, M41

Suggested Citation

Sellhorn, Thorsten and Stier, Christian, Fair Value Measurement for Long-Lived Operating Assets: Research Evidence (August 09, 2018). European Accounting Review Forthcoming, Available at SSRN: https://ssrn.com/abstract=2991997 or http://dx.doi.org/10.2139/ssrn.2991997

Thorsten Sellhorn (Contact Author)

Ludwig-Maximilians-Universitaet (LMU) Munich ( email )

Ludwigstr. 28 RG IV
Munich, Bavaria 80539
Germany
+49(0)89-21806264 (Phone)
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HOME PAGE: http://www.rwp.bwl.uni-muenchen.de/personen/professoren/sellhorn/index.html

Christian Stier

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany

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