Analyst Coverage, Market Liquidity and Disclosure Quality: A Study of Fair-Value Disclosures by European Real Estate Companies Under IAS 40 and IFRS 13

Abstract

Disclosures in notes have been criticized by practitioners for being unwieldy and contributing little to the quality of the financial information. This study presents evidence on the association between disclosure quality, analyst following and liquidity in the real estate sector. More specifically, we study the disclosure of the methods and significant assumptions applied in determining fair values of investment properties under IAS 40 and IFRS 13. We find that disclosure quality is significantly higher under IFRS 13. Furthermore, we show that the quality is associated with analyst following and bid-ask spreads. However, the improved disclosures following the adoption of IFRS 13 are not associated with any significant positive economic consequences. This result indicates that the revised disclosure requirements in IFRS 13 did not solve any market imperfections.

The decision usefulness of reported changes in fair values and fair value measurement-related disclosure for debtholders: evidence from Australian real estate industry

“…Thus, we do not find evidence to support H4. Our findings are consistent withSundgren et al (2018), who report that real estate firms do not benefit from providing additional disclosure under IFRS 13. This is, perhaps, because all real estate companies reveal other key factors (e.g.…”

The impact of voluntary environmental disclosure on firm value: Does organizational visibility play a mediation role?

“…However, this literature typically fails to account for the dynamics of the relationship between organizational visibility and CED despite evidence on a reverse causation from corporate voluntary disclosure to organizational visibility. For example, Lang and Lundholm (), Hope (), Yu (), Tsao et al (), and Sundgren et al () find enhanced voluntary corporate disclosure to be significantly associated with high analyst coverage. Healy, Hutton, and Palepu () and Tucker () also document a decrease in analyst coverage for firms that have become less forthcoming, such as firms whose disclosure ratings have declined and those who withhold bad news.…”

“…However, another stream of literature suggests that firm value increases in organizational visibility (e.g., Brammer & Millington, 2006;Chen, Hong, & Stein, 2002;Lehavy & Sloan, 2008;Merton, 1987). Furthermore, a third stream of literature suggests an association between environmental disclosure and organizational visibility (e.g., Aerts et al, 2008;Neu, Warsame, & Pedwell, 1998;Rupley, Brown, & Marshall, 2012;Sundgren, Mäki, & Somoza-López, 2018;Tsao, Lu, & Keung, 2016;Tucker, 2010;Wang, 2017;Yu, 2010). In this context, the current study explores whether organizational visibility plays a mediation role on the relationship between corporate voluntary environmental disclosure and firm value, where a mediator is defined as the carrier or transporter of information along the causal chain of effects (Little, Card, Bovaird, Preacher, & Crandall, 2007, p. 207).…”

Do measurement-related fair value disclosures affect information asymmetry?

“…Lastly, we contribute to the real estate literature. Previous studies in this industry focused mainly on the shift from local GAAP to IFRS, the possible change from historical cost to fair value (Muller et al 2011), the change from IAS40 to IFRS13 (Sundgren et al 2016) and on the recognition versus disclosure discussion (Israeli 2015, Müller et al 2015.…”