The Effect of Fair Value Method Adoption: Evidence from Real Estate Firms in the EU

Ghosh, Chinmoy; Liang, Man; Petrova, Milena

doi:10.1007/s11146-019-09721-z

Cited by 16 publications

(14 citation statements)

References 42 publications

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“…Investment properties could be valued based on the financial statements based on fair value (IAS 40.30), and a change of fair value could be recognized as profit and loss statements (IAS 40.35). The fair values of disclosed investment properties are usually level 3 in the IFRS fair value hierarchy (IFRS 13.72; Ghosh et al, 2020). The fair value for level 3 is not based on the public sources' information but rather on unobservable inputs (IFRS 13.86).…”

Section: Fair Value Reporting In the Real Estate Sectormentioning

confidence: 99%

The homogeneity of BIG4 audit reports after the implementation of key audit matters in the context of fair value accounting

2022

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This study examines the homogeneity of BIG4 audit reports after implementing key audit matters (KAMs) in the context of fair value accounting. We focus on reported KAMs and the procedures related to the fair values of investment properties, particularly those related to challenging management's estimations and valuation specialists' use. Our data consist of 235 individual audit reports from the real estate sector from 2017 to 2018 and cover 60% of the listed real estate companies in the EU, Switzerland, and Norway. We found that the BIG4 audit firms are not homogenous in their audit reports. There is a statistically significant difference among the BIG4 audit firms in reporting the challenge of management estimates and in the number of audit procedures. We also found that a country's legal origin plays a significant role when auditors report KAMs. Our findings contribute to the current audit quality and reporting literature.

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Section: Fair Value Reporting In the Real Estate Sectormentioning

confidence: 99%

The homogeneity of BIG4 audit reports after the implementation of key audit matters in the context of fair value accounting

2022

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“…where α is the percentage growth rate of GBM, i.e., the drift coefficient of simple Brownian motion; σ is the fluctuation rate of GBM, i.e., the change parameter of Brownian motion; and Dz is the increment of Wiener process. Formula (1) shows that the current project has a known value. However, the future value of the project obeys lognormal distribution.…”

Section: Classic American Real Optionmentioning

confidence: 99%

“…And all parameters satisfy Brownian motion and Wiener formula (1) where α is the percentage growth rate of GBM, i.e., the drift coefficient of simple Brownian motion; δ � ρ − σ is the fluctuation rate of GBM, i.e., the change parameter of Brownian motion; and ρ is the risk-free drift rate, i.e., the risk-free yield.…”

Section: Solution Featuresmentioning

confidence: 99%

“…At present, tourism real estate enterprises still rely on traditional metrics to analyze and evaluate project investment, such as internal rate of return (IRR), payback time, and net present value (NPV) [1]. During project analysis and evaluation, these metrics are theoretically supported by the discount cash flow (DCF) method and suitable for small construction projects requiring onetime investment.…”

Section: Introductionmentioning

confidence: 99%

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Optimization of Tourism Real Estate Development Project Based on Option Premium Model

Ying

2021

Discrete Dynamics in Nature and Society

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Compared with that of traditional housing real estate, the development of tourism real estate is time-consuming, complex, and irreversible. It is hard to guide investment decision-making on tourism real estate with the conventional discount cash flow (DCF) method. This paper aims to demonstrate that the real option method can improve and optimize the investment decision-making on tourism real estate. Through case analysis, the real option model, i.e., the classic American real option model, and binary tree value distribution model were adopted to analyze the factors affecting the real option of tourism real estate, optimize the development sequence of tourism real estate project, and demonstrate the phased development value of tourism real state, thereby enhancing the development value of tourism real estate projects. The case analysis proves that tourism real estate investment is fully consistent with real option in the uncertain spatiotemporal attributes: uncertainty, irreversibility, and timeliness. Therefore, tourism real estate project carries obvious features of real option. The decision-making by the real option model is much more scientific and superior than that by the conventional DCF method. Since the application of real option theory has been emphasizing housing real estate over tourism real estate, the research results enrich the theory on real option-based investment decision-making for real estate and expand the application scope of real option.

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“…The study of the explanatory power of financial statements of real estate companies on their share value has generated continuous interest in recent decades (i.e. Aliberch and Blandón, 2012;Argilés et al, 2011;Cairns et al, 2011;Collins et al, 1997;Devalle & Rizzato, 2011;Ghosh et al, 2020;Guthrie et al, 2011;Israeli, 2015;Liang & Riedl, 2014;Liao et al, 2020;Mäki et al, 2016;Nellessen & Zuelch, 2011;Pinto & Pais, 2015;De Souza et al, 2015;Sundgren et al, 2018;De Vicente-Lama et al, 2017;Wahyuni et al, 2019). Our work also aims to analyse the influence of alternative valuation models of investment properties based on historical cost and fair value, respectively, on the market value of real estate companies, in a context of particular market sensitivity by the influence of the economic crisis.…”

Section: Introductionmentioning

confidence: 99%

Capital markets and valuation models of investment properties. A pre and post crisis analysis

2022

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This work analyses the effect of the fair value and historical cost models, optionally applicable under IAS 40 for investment properties on the market value of Spanish groups of real estate listed companies between 2005 and 2018. The results of the application of the Ohlson Model do not suggest any relationship of financial information with the market value in the pre-crisis and economic crisis periods. However, in the post-crisis period, financial information represented by book value gains relevance, showing a significant positive relationship with the market value of real estate companies, although suggesting a reduction in the asymmetry of financial information in companies using the fair value method. Este trabajo analiza el efecto de los modelos de valor razonable y coste histórico, aplicables opcionalmente según la NIC 40 para las inversiones inmobiliarias, sobre el valor de mercado de los grupos inmobiliarios cotizados españoles entre 2005 y 2018. Los resultados de la aplicación del Modelo de Ohlson no sugieren relación alguna de la información financiera con el valor de cotización en los períodos de pre-crisis y crisis económica. Sin embargo, en el período post-crisis, la información financiera representada por el valor en libros gana en relevancia, mostrando una relación positiva significativa con el valor de mercado de las empresas inmobiliarias, aunque sugiriendo una reducción en la asimetría de la información financiera en las empresas que utilizan el método del valor razonable.

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The Effect of Fair Value Method Adoption: Evidence from Real Estate Firms in the EU

Cited by 16 publications

References 42 publications

The homogeneity of BIG4 audit reports after the implementation of key audit matters in the context of fair value accounting

The homogeneity of BIG4 audit reports after the implementation of key audit matters in the context of fair value accounting

Optimization of Tourism Real Estate Development Project Based on Option Premium Model

Capital markets and valuation models of investment properties. A pre and post crisis analysis

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