Cross-Country Differences in Disclosure Quality: A Study of Fair Value Disclosures by European Real Estate Companies.

Abstract

Document de Treball núm.13/7La sèrie Documents de treball d'economia de l'empresa presenta els avanços i resultats d'investigacions en curs que han estat presentades i discutides en aquest departament; això no obstant, les opinions són responsabilitat dels autors. El document no pot ser reproduït total ni parcialment sense el consentiment de l'autor/a o autors/res. Dirigir els comentaris i suggerències directament a l'autor/a o autors/res, a la direcció que apareix a la pàgina següent.A Working Paper in the Documents de treball d'economia de l'empresa series is intended as a mean whereby a faculty researcher's thoughts and findings may be communicated to interested readers for their comments. Nevertheless, the ideas put forwards are responsibility of the author. Accordingly a Working Paper should not be quoted nor the data referred to without the written consent of the author. Please, direct your comments and suggestions to the author, which address shows up in the next page. Cross-Country Differences in Cross-Country Differences in Disclosure Quality: a Study of Fair Value Disclosures by European Real Estate Companies AbstractCompanies are under IAS 40 required to report fair values of investment properties on the balance sheet or to disclose them in the notes. The standard requires also that companies have to disclose the methods and significant assumptions applied in determining fair values of investment properties. However, IAS 40 does not include any illustrative examples or other guidance on how to apply the disclosure requirements. We use a sample with publicly traded companies from the real estate sector in the EU. We find that a majority of the companies use income based methods for the measurement of fair values but there are considerable cross-country variations in the level of disclosures about the assumptions used in determining fair values. More specifically, we find that Scandinavian and German origin companies disclose more than French and English origin companies. We also test whether disclosure quality is associated with enforcement quality measured with the "Rule of Law" index according to Kaufmann et al. (2010), and associated with a secrecyversus transparency-measure based on Gray (1988). We find a positive association between disclosure and earnings quality and a negative association with secrecy.2

Do measurement-related fair value disclosures affect information asymmetry?

“…The differences among countries is significant at the 1% level (F-stat = 9.59). These results are in line with Vergauwe and Gaeremynck (2013) and Sundgren et al (2013).…”

European Real Estate Properties Valuation: Ten Years After Adopting IFRS 13

“…No information has been published regarding the actual effects of the new standard. In working research by Sundgren et al [8], which highlights disclosure quality in the real estate industry, they state that their study is "one of the first of its kind within this area" [8]. Though in their paper, they focus their attention on the old regulations (IAS 40).…”

“…Although IFRS 13 does not include significant changes concerning the methods of fair value measurement, it extensively develops the requirements for disclosures about measurement uncertainty [4]. This can be seen as a big change, especially in contrast to IAS 40, which only included rudimentary instructions about mandatory disclosures relative to the appraisal of the fair value of investment properties [8].…”

Comparative Analysis on Corporate Disclosure Practices of Listed Companies in ASEAN-5 after the Adoption of the Renewal Regional Disclosure Standards

“…Based on legitimacy theory, it contends that environmental factors could have influences on accounting system as well as disclosure practices across country. This includes not only internal but also external variables such as a demand for information of stakeholders, an influence of globalization, an advancement of technological innovation, an increasing of international trade and investments agreement, a global harmonization of accounting standards and so on (Choi, 1973 ;Thomas, 1986 ;Garcia, 2007;Chuanrommanee & Swierczek, 2007;Bauwhede & Willekens, 2008;Bokpin, 2013;Kittiakrastein & Srijunpetch, 2013;Sundgren et al, 2013;and Aksu & Espahbodi, 2016). In accordance with aforementioned, there are a number of empirical evidences convincing that the adoption of stronger standards could help to develop and stimulate better businesses practices, reflecting on the greater transparency.…”

“…Furthermore, the literature still believes that, in some countries, the disclosure rules and regulations are regulated based on their own direction and experiences. Following this procedure, only domestic demands have been concentrated while external forces seem to be ignored (Sundgren et al, 2013). As a result of this, the new setting policies may be separated from the international standard and they can only be implemented effectively within the respective country.…”