THE VALUE RELEVANCE OF INVESTMENT PROPERTY FAIR VALUES

1
Isabel Costa Lourenço
Assistant Professor
Accounting Department, ISCTE Business School

José Dias Curto

Assistant Professor
Quantitative Methods Department, ISCTE Business School

2
Abstract

This study investigates whether the recognized cost, recognized fair value and disclosed fair value

of investment property are priced differently by investors. An analysis is also made into whether the

recognized fair value of investment property in four European countries with dissimilar characteristics

is priced by investors differently from each other. Our sample is composed of listed real estate firms in

France, Germany, Sweden and U.K. subject to the mandatory adoption of IFRS since 2005. The

empirical results suggest that investors distinguish the recognized cost, the recognized fair value and

the disclosed fair value of investment property, but they do not distinguish valuation implications of

the recognized fair value of investment property in the four countries under analysis.

KEYWORDS: Investment Property, Fair Value Model, Value-relevance

1
Corresponding author: Isabel Lourenço, Avenida Forças Armadas, 1649-026 Lisboa, Portugal, isabel.lourenco@iscte.pt.
2
We gratefully acknowledge participants at the 2007 European Accounting Association Congress (Lisbon) for their helpful
comments on a preliminary version of this paper.

Electronic copy available at: http://ssrn.com/abstract=1301683

1. INTRODUCTION

There is no international consensus on how investment property should be measured after

recognition. Alternatives include the cost model and the fair value model. The key question underlying

this issue is whether the fair value model provides more relevant information without a loss of

reliability. There are some reservations about extending a fair value model to investment property,

especially because certain property markets may not be sufficiently mature for a fair value model to

work satisfactorily.

The efforts to find international consensus on the appropriate model to measure investment

property after recognition is hampered by a gap in our knowledge about the relative value relevance of

different types of fair value estimates of investment property.

This paper addresses this gap in the accounting literature by investigating: (i) whether the

recognized cost, recognized fair value and disclosed fair value of investment property are priced

differently by investors; and (ii) whether the recognized fair value of investment property in France,

Germany, Sweden and the U.K. are priced by investors differently from each other. To this end, we

estimate four valuation models based on the work of Ohlson (1995) and Feltham and Ohlson (1995),

after some desegregations which allow to include the recognized cost and disclosed fair value of

investment properties accounted for under the cost model, as well as the recognized fair values of

investment property accounted by the fair value model, overall and in each of the countries under

analysis. Our conclusions are based essentially on coefficient comparisons.

The empirical study is conducted in the European setting where the international accounting

standard IAS 40 allows firms to choose either the fair value model or the cost model (with disclosure

of fair value in the notes) as their accounting policy for investment property. We select four European

countries with dissimilar characteristics, namely France, Germany, Sweden and U.K. We analyse only

the real estate industry, where investment property represents the majority of firms’ assets.

The results of this research suggest that investors distinguish recognized amounts of investment

property accounted for under the cost model and the fair value model. They also distinguish the

Electronic copy available at: http://ssrn.com/abstract=1301683

disclosed fair value and the recognized cost of investment property accounted for under the cost model

as well as the disclosed fair value of investment property accounted for under the cost model and the

recognized fair value of investment property accounted for under the fair value model. However,

investors do not seem to distinguish the recognized fair value of investment property in the four

countries under analysis. This research contributes to the literature examining attributes of fair value

estimates for non-financial assets (e.g. Barth and Clinch, 1998) by comparing the way as investors

valued recognized fair values of investment property in four countries with dissimilar characteristics.

The remainder of the paper is organized as follows. Section 2 provides background information to

the research. Section 3 describes the research design. Section 4 presents the findings and section 5

presents the summary and concluding remarks.

2. BACKGROUND

The New Accounting Rule for European Listed Companies

The European listed companies are required to apply IFRS instead of national GAAP as the basis

for presenting their consolidated financial statements for the annual accounting period beginning on or

after 1 January 2005. Thus, listed companies that report investment property should now apply the

International Accounting Standard 40, Investment Property (IAS 40), issued in 2000 and amended in

2003. While this new regulation could lead to a significant change in the accounting practices in some

countries, it is not expected to cause change in other countries.

The IAS 40 defines investment property as a property (land or a building, or part of a building or

both) held to earn rentals or for capital appreciation or both, rather than for use in the production or

supply of goods or services or for administrative purposes or for sale in the ordinary course of

business. This standard allows firms to choose the cost model and the fair value model as their

accounting policy to measure investment property after recognition.

3
 Investment property accounted for under the cost model is measured in the same way as occupied

property, i.e., IAS 16 requirements on the cost model should be applied. Thus, investment property is

carried on the balance sheet at its cost less any accumulated depreciation and any accumulated

impairment losses. However, IAS 40 still requires firms to disclose the fair value of their investment

property in the notes. Investment property accounted for under the fair value model is carried on the

balance sheet at fair value. When applying this model, depreciation is forbidden and all changes in the

fair value should be recognized in the profit or loss in the period in which they arise. Hence, all listed

firms reporting investment property should now provide its fair value, either in the notes (cost model)

or directly in the balance sheet (fair value model). They are also encouraged, but not required, to

determine the fair value of investment property on the basis of a valuation made by an independent

appraiser. Almost all the firms used in our analysis follow this recommendation3.

The IASB believes that information about both the fair value of investment property and the

changes in its fair value is highly relevant to users of financial statements. However, when preparing

IAS 40, the IASB decided to include a choice between the cost model and the fair value model for two

main reasons (Exposure Draft 64). Firstly, this gives preparers and users time to acquire experience in

using a fair value model. Secondly, it allows time for countries with less-developed property markets

and valuation professions to mature.

As IAS 40 enables firms to report investment property using either the cost model or the fair value

model and requires disclosure of fair value for those firms using the cost model, a rare opportunity

arises to investigate whether recognized cost, recognized fair value and disclosed fair value are priced

differently by investors.

The Old Accounting Rules for European Listed Companies

3
About half of the Swedish firms determine the fair value of investment property using an internal valuation
model but, in order to provide further assurance and validation of the internal valuation, a significant part of their
investment property is also valued by an external appraiser.
4
 Prior to the adoption of IFRS, investment property was accounted for under national GAAP. The

accounting policies used to measure investment property after recognition varied considerably across

European countries. For example, in France, Germany and Spain investment property had to be treated

as property, plant and equipment and measured by the cost model. In Italy and the U.K. investment

property had to be treated separately from property, plant and equipment; however, while firms in the

U.K. were required to use the fair value model, in Italy it was prohibited. In Sweden and the

Netherlands, investment property also had to be treated separately from property, plant and equipment

but firms were allowed to apply either the cost model (with disclosure of investment property fair

values) or the fair value model. For more detailed information on the pre-IFRS domestic GAAP

treatment for investment property see Muller, Riedl and Sellhorn (2008).

As a result, firms in some European countries were already used to applying the fair value model or

at least to disclosing investment property fair values while reporting investment property fair values is

really something new in some other countries. Our analysis includes two countries from each one of

these groups (Sweden and U.K. from the first group and France and Germany from the latter group).

Related research

This research contributes to the literature examining attributes of fair value estimates for non-

financial assets. Barth and Clinch (1998) find that voluntary tangible assets revalued amounts for

Australian firms are associated with share prices. They also provides evidence that, for non-financial

and mining Australian firms, property (included in property, plant and equipment) measured at cost

and at fair value are valued differently by investors. Owusu and Yeoh (2006) show that investors do

not relatively value investment property for which unrealized gains were recognized in the income

statement higher than those for which unrealized gains were recognized in revaluation reserve. Our

study adds to this literature by comparing the way as investors valued recognized fair values of

investment property in four countries with dissimilar characteristics.

5
 Furthermore, Danbolt and Rees (2008) provide evidence that fair values are biased where valuation

is ambiguous (tangible assets) and are more reliable where they are unambiguous (financial assets).

Dietrich et al. (2001) provides evidence that fair value estimates by U.K. property firms employing

external appraisers are less biased and more accurate than those reported by firms employing internal

appraisers. Muller and Riedl (2002) provides evidence that the market perceives fair values estimates

as more reliable when external as opposed to internal appraisers are employed, reflected in lower bid-

ask spreads for firms employing external appraisers. Our study adds to this literature by analysing one

setting where in almost all the cases the fair value of investment property is determined by

independent appraisers.

3. RESEARCH DESIGN

Sample and data

The empirical analysis is conducted in the European setting where the international accounting

standard IAS 40 allows firms to choose between the fair value model and the cost model for their

accounting policy for investment property. As investment property represents the majority of firms’

assets in the real estate industry, we analyze only those firms classified as real estate firms in the

worldscope database. This study uses only the listed firms required to apply IFRS since the accounting

period beginning on or after 1 January 2005. The sample period comprises the first three years of

mandatory adoption of IFRS.

We select four European countries with dissimilar characteristics: an Anglo-Saxon country (U.K.),

a Nordic country (Sweden) and two continental countries, one of which has a medium level of

shareholder protection (France) while the other has a low level of shareholder protection (Germany).4

Joos and Lang (1994) identify Germany and the U.K. as the originators, and arguably the most

extreme examples of the two primary accounting philosophies worldwide, the Anglo-Saxon and the

6
Continental models. France is considered one intermediate example of those two models. Based on the

antidirector rights index constructed by La Porta (1997; 1998) as a proxy for the level of shareholder

protection in each country, the U.K. is classified as a country with a high level of shareholders

protection, France and Sweden are countries with a medium level of shareholders protection and

Germany is the country with the lower level of shareholders protection. Before the mandatory

adoption of IFRS, firms in the U.K. and Sweden were already used to applying the fair value model,

unlike Germany and France where local GAAP required all firms to apply the cost model.

Firms with no data available for all the variables are excluded from the sample. To mitigate effects

of influential observations on the estimated coefficients, we exclude all the observations in which

absolute value of the DFBETA indicator is higher than 2. The DFBETAS are computed for all the

regressions and for all the variables including the dummies. This results in the deletion of 3% of the

observations. The final sample is composed of 224 firm-year observations distributed as follows:

United Kingdom (93), France (55), Germany (40) and Sweden (36). The accounting data are from the

firms’ annual reports, which were hand-collected from the firms’ websites. The share prices and the

number of shares are from the Worldscope database.

Empirical models

Our aim is to determine both whether the recognized cost, recognized fair value and disclosed fair

value of investment property are priced differently by investors, and whether recognized fair value of

investment property in France, Germany, Sweden and the United Kingdom are priced by investors

differently from each other.

In line with previous research on the value relevance of accounting data that relies on the

comparison of coefficients of different items on the balance sheet (e.g. Barth et al., 1998, and

Landsman et al., 2008), we support our analysis on the following model:

4
Only in these four European countries more than 10 firms are found with information available for each of the
7
 Pit = α 0 + α1 ASSETS it + α 2 IPit + α 3 LIABILITIES it + α 4 NI it + ε it (1)

where P is the share price as of three months after the fiscal year-end5, ASSETS represents the total

assets excluding the recognized amount of investment property, IP is the recognized amount of

investment property and NI is the net operating income, and all the variables are on a per share basis.

The share price is a summary measure of information that is relevant to investors, while book value

(assets minus liabilities) and earnings are measures that summarize the information reflected in

financial statement.

In order to assess whether the recognized cost and recognized fair value of investment property are

priced differently by investors, we replaced the variable IP in (1) by two interaction terms resulting

from the product of IP with two dummy variables, COST and FAIR VALUE, that assume the value 1

when the firm uses the cost model or the fair value model, respectively, and 0 otherwise. This

procedure gives rise to the following model:

Pit = α 0 + α1 ASSETSit + α 2 IP x COSTit + α 3 IP x FAIR VALUEit + α 4 LIABILITIESit + α 5 NIit + ε it (2)

We predict that all the coefficients in (2) are positive, except the liabilities’ coefficient that we

expect to be negative and statistically significant, i.e., all the associated variables are value relevant.

To check whether investors price the recognized amounts of investment property accounted for under

the cost model and the fair value model differently, we test the equality of the interaction terms PI x

COST and PI x FAIR VALUE coefficients.

To assess whether the recognized cost and disclosed fair value are priced differently by investors,

we introduced a new variable in the equation (2): the difference between disclosed fair value and

recognized amounts of investment property accounted for under the cost model (IP_COST_DFVC),

giving rise to the following model:

three years analyzed in this study.

5
Untabulated findings reveal that our inferences are not sensitive to using prices as of fiscal year-end or as of
three months after fiscal year-end.
8
 Pit = α 0 + α1 ASSETSit + α 2 IP x COSTit + α 3 IP _ COST_DFVC it + α 4 IP x FAIR VALUEit + α 5 LIABILITIESit + α 6 NIit + ε it (3)

We also predict that all the balance sheet estimated coefficients in (3) are statistically significant. If

the recognized cost and disclosed fair value of investment property accounted for under the cost model

are priced differently by investors, the IP_COST_DFVC coefficient should be statistically different

from zero.

To assess whether the recognized fair value and the disclosed fair value of investment property are

priced differently by investors, we replace the variable IP x COST in (2) by a new variable: the

disclosed fair value of investment property accounted for under the cost model

(IP_COST_DISCLOSED FV), giving rise to the following model:

Pit = α 0 + α1 ASSETSit + α 2 IP_COST_DISCLOSED FVit + α 3 IP x FAIR VALUEit + α 4 LIABILITIESit + α 5 NIit + ε it (4)

We also predict that all the estimated coefficients in (4) are statistically significant. We test the

equality of IP_COST_DISCLOSED FV and IP x FAIR VALUE coefficients to check whether the

disclosed fair value of investment property accounted for under the cost model and the recognized

amount of investment property accounted for under the fair value model are priced differently by

investors.

Finally, and in order to assess whether the recognized amounts of investment property accounted

for under the fair value model in France, Germany, Sweden and in the United Kingdom are priced by

investors differently from each other, we replaced the interaction term PI x FAIR VALUE in (4) by

four new composite variables resulting from the product of that interaction term with four dummy

variables, FRANCE, GERMANY, SWEDEN and U.K., that assume the value 1 when the firm’s

country is the one selected, and 0 otherwise. This procedure gives rise to the following model:

Pit = α 0 + α1 ASSETSit + α 2 IP_COST_DISCLOSEDFVit + α 3 IP x FAIR VALUE x FRANCEit + α 4 IP x FAIR VALUE x GERMANYit +

9
 α 5 IP x FAIR VALUE x SWEDEN it + α 6 IP x FAIR VALUE x UK it + α 7 LIABILITIESit + α 8 NIit + ε i (5)

We also predict that all the estimated coefficients in (5) are statistically significant, i.e., the

associated variables are value relevant. We test the equality of the coefficients on interaction terms IP

x FAIR VALUE x FRANCE, IP x FAIR VALUE x GERMANY, IP x FAIR VALUE x SWEDEN

and IP x FAIR VALUE x UK in order to see if the recognized amount of investment property

accounted for under the fair value model in each of this countries is priced differently by investors.

Due to the heteroscedasticity problems of the observed errors, and following Easton and Sommers

(2003), we estimate the models via a weighted least squares regression (WLS - the weight variable is

the share price). The resulting regression specification no longer suffers from the coefficient bias and

heteroscedasticity found in the unweighted regression.

Furthermore, models (2), (3), (4) and (5) are estimated with country fixed effects. In each one of

the models, we add the dummy variables FRANCE, GERMANY and SWEDEN which assume the

value 1 when the firm’s country is the selected country and 0 otherwise. These binary variables

capture the unobserved variation between countries and thereby eliminate any bias which could arise

due to different levels of sophistication in the four stock markets. The country reference is the U.K.

and therefore the overall estimated intercept corresponds to it. The estimated coefficients for the

dummies France, Germany and Sweden are added to the overall intercept in order to compute the

intercepts for each of the other three countries.

4. FINDINGS

Descriptive statistics

Table 1 presents descriptive statistics for the variables that form the regression models and the

number of nonzero observations for each variable. Variables amounts are all per share values and they

are presented in euros.

10
 These statistics indicate that, despite the revaluations, on average investment property represents

the majority of firms’ assets. The mean values for the recognized amount of investment property

accounted for under the cost value model and the fair model are 43.29 and 34.47 euros per share

respectively. The mean value for the other assets, excluding investment properties, is 18.78 euros per

share.

Table 1 also reveals a higher number of observations for recognized amounts of investments

property accounted for under the fair value model than under the cost model (183 against 41

observations). The mean of disclosed fair values of investment property accounted for under the cost

model is substantially higher than their recognized amounts (61.43 against 43.29 euros per share).

Thus, the adoption of the fair value model would have a significant economic effect for these

companies.

TABLE 1

Regression results

Recognized cost versus recognized fair value

Panel A of table 2 shows the equation (2) WLS estimation results including the estimated

coefficients for the country fixed effects dummy variables. The Wald test for the interaction effects

coefficients comparison and its significance appear in panel B.

TABLE 2

Table 2, panel A, shows that the estimates for all the balance sheet coefficients are statistically

significant and have the expected sign. Thus, both investment properties recognized at cost and

recognized at fair value are value relevant. However, the p-value (0.000) associated with the Wald test

11
coefficients comparison presented in panel B, implies the rejection of the null hypothesis that the

coefficients of investment properties recognized at cost and recognized at fair value are identical. This

result suggests that investors distinguish recognized amounts of investment property accounted for

under the cost model and the fair value model. Our finding is consistent and stronger than the one of

Barth et al. (1998). This was already expectable as we analyse real state firms, while those authors use

conventional firms for which revaluations have a marginal effect.

Recognized cost versus disclosed fair value

Table 3 shows the equation (3) WLS estimation results including the estimated coefficients for the

country fixed effects dummy variables.

TABLE 3

As shown in Table 3, the estimates for all the balance sheet coefficients are again statistically

significant and have the expected sign. Not surprisingly, the estimate for the difference between

disclosed fair value and recognized amounts of investment property measured by the cost model is

positive and statistically different from zero. This result suggests that investors distinguish disclosed

fair value and recognized cost of investment property accounted for under the cost model.

Recognized fair value versus disclosed fair value

Panel A of table 4 presents the equation (4) WLS estimation results including the estimated

coefficients for the country fixed effects dummy variables. The Wald test for the interaction effects

coefficients comparison and its significance appear in panel B.

TABLE 4

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 Table 4, panel A, shows that both the recognized amount of investment property accounted for

under the fair value model and the disclosed fair value of investment property accounted for under the

cost model are value relevant. However, the p-value (0.000) associated with the Wald test coefficients

comparison shown in panel B, leads us to reject the null hypothesis that the coefficients of the

disclosed and recognized fair value of investment property are equal. Based on this result, we can

conclude that investors distinguish the fair value disclosed in the notes and recognized in the balance

sheet.

Cotter and Zimmer (2003) analyse Australian real estate firms and find that managers are more

likely to recognize (rather than just disclose) the current value of real estate when the current value

estimate is more reliable. They also show that the market discounts disclosure compared to recognition

of real estate revaluations. Further, Muller, Riedl and Sellhorn (2008) also find that European listed

firms are more likely to choose the fair value model instead of the cost model to measure investment

property after recognition when the property market in which they operate has higher liquidity. Our

result is consistent with findings of these two previous studies.

Recognized fair value in France, Germany, Sweden and U.K.

Table 5 shows the equation (5) WLS estimation results including the estimated coefficients for the

country fixed effects dummy variables as well as the Wald test for the interaction effects coefficients

comparison and its significance.

TABLE 5

As shown in Table 5, the estimates for all the balance sheet coefficients are statistically significant.

Thus, investment properties recognized at fair value are value relevant irrespective of the firm’s

country. Further, the p-values associated with the Wald pairwise coefficients comparison tests (0.551;

13
0.674; 0.290; 0.926; 0.824; 0,766) presented in panel B of Table 5 reveals that we do not reject the

null hypotheses that the coefficients of the recognized amount of investment property accounted for

under the fair value model in two different countries are equal. This result suggests that investors do

not distinguish valuation implications of recognized amounts of investment property accounted for

under the fair value model in the four countries under analysis.

Prior studies support the idea that strong shareholder protection attenuates management

opportunism while weak shareholder protection exacerbates it and, thus, managers are more likely to

manipulate accrual in a weak shareholder environment than in a strong one. Hung (2001) provides

evidence that the use of accrual accounting negatively affects the value relevance of accounting

numbers in countries with a weak level of shareholder protection. Further, Soderstrom and Sun (2007)

argument that cross-country differences in the value relevance of accounting numbers are likely to

remain following IFRS adoption because the value relevance of accounting numbers is a function of

the firm’s overall institutional setting, including the legal and political system of the country in which

the firm resided.

However, our results seem to suggest that in the European real estate industry, where the fair value

of investment property recognized by almost all the firms is determined by independent appraisers,

investors do not distinguish valuation implications of the recognized amounts in the four countries

with dissimilar characteristics under analysis.

5. SUMMARY AND CONCLUSIONS

There is no international consensus on how investment property should be measured after

recognition. The key question underlying this issue is whether the fair value model provides more

relevant information without a loss of reliability, ie, more value relevant information.

This paper addresses a gap in our knowledge about the relative value relevance of different types of

fair value estimates of investment property by exploring the European setting where listed firms are

allowed to choose either the fair value model or the cost model (with disclosure of fair value in the
14
notes) as their accounting policy for investment property. We select four European countries with

dissimilar characteristics, namely France, Germany, Sweden and U.K.

The results of this research suggest that investors distinguish recognized cost and recognized fair

value of investment property. They also distinguish the two alternative ways to report investment

property’s fair values (recognize or disclose). Finally, investors do not seem to distinguish the

recognized fair value of investment property in France, Germany, Sweden and U.K.

15
REFERENCES

Barth, M. and Clinch, G. (1998) ‘Revalued financial, tangible and intangible assets: associations with

share prices and non-market-based value estimates ’, Journal of Accounting Research, pp. 199-233.

Cotter, J. and Zimmer, I. (2003) ‘Disclosure versus recognition: the case of asset revaluations’, Asian-

Pacific Journal of Accounting and Economics.

Danbolt J. and Rees, W. (2008) ‘An experiment in fair value accounting: UK investment vehicles’,

European Accounting Review, pp. 271-303.

Dietrich, J., Harris, M. and Muller, K. (2001) ‘The reliability of investment property fair value

estimates’, Journal of Accounting and Economics, pp. 125-158.

Easton, P. and Sommers, G. (2003) ‘Scale and scale effect in market-based accounting research’,

Journal of Business Finance and Accounting, pp. 25-55.

Feltham, G. and Ohlson, J. (1995) ‘Valuation and clean surplus accounting for operating and financial

activities’, Contemporary Accounting Research, pp. 689-731.

Hung, M. (2001) ‘Accounting standards and value relevance of financial statements: an international

analysis’, Journal of Accounting and Economics, pp. 401-420.

IASB (2003) ‘Investment Property’, International Accounting Standard 40, London.

Joos, P. and Lang, M. (1994) ‘The effect of accounting diversity: evidence from the European Union’,

Journal of Accounting Research, pp. 141-168.

Landsman, W., Peasnell, K. and Shakespeare, C. (2008) ‘Are asset securitizations sales or loans?’,

Accounting Review, pp. 1251-1272.

Muller, K., Rield, E. and Sellhorn, T. (2008) ‘Choosing cost versus fair value: international evidence

from the European real estate industry upon adoption of IFRS’, Paper presented at the AAA annual

meeting, Anaheim, CA.

Muller, K. and Riedl (2002) ‘External monitoring of property appraisal estimates and information

asymmetry’, Journal of Accounting Research, pp. 865-881.

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La Porta, R; Lopes-de-Silanes, F., Shleifer, A., Vishny, R. (1997) ‘Legal determinants of external

finance’, The Journal of Finance, pp. 1131-1150.

La Porta, R; Lopes-de-Silanes, F., Shleifer, A., Vishny, R. (1998) ‘Law and finance’, The Journal of

Political Economy, pp. 1113-1155.

Ohlson, J. (1995) ‘Earnings, book values and dividends in equity valuation’, Contemporary

Accounting Research, pp. 661-687.

Owusu-Ansah, S. and Yeoh, J. (2006) ‘Relative value relevance of alternative accounting treatments

of unrealized gains: implications for the IASB’, Journal of International Financial Management and

Accounting, pp. 228-255.

Soderstrom, N. and Sun, K. (2007), ‘IFRS adoption and accounting quality: a review’, European

Accounting Review, pp. 675-702.

17
 TABLE 1

Descriptive statistics for the variables used in the empirical tests

Mean Median Std. Dev. Max. Min. n

PRICE 28.44 11.13 41.06 325.40 0.10 224

ASSETS 18.78 4.23 47.37 545.93 0.03 224
LIABILITIES 33.28 14.21 58.00 467.56 0.00 224
NET INCOME 2.89 1.20 5.80 46.39 -5.33 224

INVESTMENT PROPERTY
COST 43.29 36.24 72.29 461.96 0.47 41
FAIR VALUE 34.47 12.92 55.62 366.78 0.00 183
FRANCE 130.76 108.57 92.86 366.78 1.40 26
GERMANY 26.93 17.84 26.89 108.25 3.72 28
SWEDEN 15.88 14.28 9.68 45.89 5.26 36
U.K. 17.02 9.28 21.41 112.59 0.00 93
DISCLOSED FV 61.43 46.82 100.86 628.90 0.51 41
DFVC 18.13 6.58 31.22 166.94 0.00 41

PRICE = share price as of three months after fiscal year-end.

ASSETS = Total assets excluding recognized amount of investment property.
LIABILITIES = Total liabilities.
NET INCOME = Net operating income.
INVESTMENT PROPERTY
COST = recognized amounts of investment property accounted for under the cost model.
FAIR VALUE = recognized amounts of investment property accounted for under the fair value model.
DISCLOSED FV = disclosed fair value of investment property accounted for under the cost model.
DFVC = difference between disclosed fair value and recognized amounts of investment property accounted for under the
cost model.
All variables are deflated by the number of shares outstanding. n indicates number of observations with nonzero amounts.

18
 TABLE 2

Recognized cost versus recognized fair value of investment property

Panel A: Regression results

PRICE it = α 0 + α1 FRANCE it + α 2 GERMANYit + α 3 SWEDEN it + α 4 ASSETSit + α 5 IP x COSTit + α 6 IP x FAIR VALUEit +

+ α 7 LIABILITIESit + α 8 NET INCOME it + ε it

Coef. Std. Error t-statistics p-value Adj. R2

C -0.00 0.02 -0.21 0.83 0.875
FRANCE -0.23 0.08 -3.00 0.00
GERMANY 0.63 0.45 1.39 0.17
SWEDEN 1.06 0.40 2.69 0.01
ASSETS 0.68 0.04 16.06 0.00
IP x COST 0.99 0.06 15.41 0.00
IP x FAIR VALUE 0.66 0.04 17.59 0.00
LIABILITIES -0.61 0.05 -11.15 0.00
NET INCOME 1.19 0.14 8.32 0.00

Panel B: Test of coefficients equality results

Restriction Wald test p-value

α5 = α6 42.260 0.000

PRICE = share price as of three months after fiscal year-end.

FRANCE = Dummy variable that assumes 1 when the firm’s country is France and 0 otherwise.
GERMANY = Dummy variable that assumes 1 when the firm’s country is Germany and 0 otherwise.
SWEDEN = Dummy variable that assumes 1 when the firm’s country is Sweden and 0 otherwise.
ASSETS = Total assets excluding recognized amount of investment property.
LIABILITIES = Total liabilities.
NET INCOME = Net operating income.
IP = recognized amount of investment property.
COST = Dummy variable that assumes 1 when the firm use the cost model and 0 otherwise.
FAIR VALUE = Dummy variable that assumes 1 when the firm uses the fair value model and 0 otherwise.
All variables are deflated by the number of shares outstanding.

19
 TABLE 3
Recognized cost versus disclosed fair value of investment property

Regression results

PRICE it = α 0 + α1 FRANCE it + α 2 GERMANYit + α 3 SWEDEN it + α 4 ASSETSit + α 5 IP x COSTit + α 6 IP_COST_DF VCit +

α 7 IP x FAIR VALUE it + α 8 LIABILITIESit + α 9 NET INCOME it + ε it

Coef. Std. Error t-statistics p-value Adj. R2

C -0.00 0.02 -0.10 0.92 0.887
FRANCE -0.25 0.07 -3.39 0.00
GERMANY 0.66 0.43 1.52 0.13
SWEDEN 1.07 0.38 2.84 0.01
ASSETS 0.65 0.04 16.05 0.00
IP x COST 0.79 0.07 10.68 0.00
IP_COST_DFVC 0.96 0.20 4.81 0.00
IP x FAIR VALUE 0.65 0.04 18.10 0.00
LIABILITIES -0.58 0.05 -11.20 0.00
NET INCOME 1.17 0.14 8.56 0.00

PRICE = share price as of three months after fiscal year-end.

FRANCE = Dummy variable that assumes 1 when the firm’s country is France and 0 otherwise.
GERMANY = Dummy variable that assumes 1 when the firm’s country is Germany and 0 otherwise.
SWEDEN = Dummy variable that assumes 1 when the firm’s country is Sweden and 0 otherwise.
ASSETS = Total assets excluding recognized amount of investment property.
LIABILITIES = Total liabilities.
NET INCOME = Net operating income.
IP = recognized amount of investment property.
COST = Dummy variable that assumes 1 when the firm use the cost model and 0 otherwise.
FAIR VALUE = Dummy variable that assumes 1 when the firm uses the fair value model and 0 otherwise.
IP_COST_DFVC = difference between disclosed fair value and recognized amounts of investment property accounted for
under the cost model.
All variables are deflated by the number of shares outstanding.

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 TABLE 4
Recognized fair value versus disclosed fair value of investment property

Panel A: Regression results

PRICE it = α 0 + α1 FRANCE it + α 2 GERMANYit + α 3 SWEDEN it + α 4 ASSETSit + α 5 IP_COST_DISCLOSED FVit +

+ α 6 IP x FAIR VALUE it + α 7 LIABILITIESit + α 8 NET INCOME it + ε it

Coef. Std. Error t-statistics p-value Adj. R2

C -0.00 0.02 -0.13 0.90 0.887
FRANCE -0.24 0.07 -3.45 0.00
GERMANY 0.65 0.43 1.52 0.13
SWEDEN 1.07 0.38 2.84 0.01
ASSETS 0.66 0.04 16.76 0.00
IP_COST_DISCLOSED FV 0.83 0.05 16.89 0.00
IP x FAIR VALUE 0.65 0.03 18.71 0.00
LIABILITIES -0.59 0.05 -11.75 0.00
NET INCOME 1.17 0.14 8.58 0.00

Panel B: Test of coefficients equality results

Restriction Wald test p-value

α5 = α6 18.965 0.000

PRICE = share price as of three months after fiscal year-end.

FRANCE = Dummy variable that assumes 1 when the firm’s country is France and 0 otherwise.
GERMANY = Dummy variable that assumes 1 when the firm’s country is Germany and 0 otherwise.
SWEDEN = Dummy variable that assumes 1 when the firm’s country is Sweden and 0 otherwise.
ASSETS = Total assets excluding recognized amount of investment property.
LIABILITIES = Total liabilities.
NET INCOME = Net operating income.
IP_ COST_DISCLOSED FV = disclosed fair value of investment property accounted for under the cost model.
IP = recognized amount of investment property.
FAIR VALUE = Dummy variable that assumes 1 when the firm uses the fair value model and 0 otherwise.
All variables are deflated by the number of shares outstanding.

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 TABLE 5

Recognized fair value of investment property in France, Germany, Sweden and in the U.K.

Panel A: Regression results

PRICE it = α 0 + α1 FRANCE it + α 2 GERMANYit + α 3 SWEDEN it + α 4 ASSETSit + α 5 IP_COST_DISCLOSED FVit +

+ α 6 IP x FAIR VALUE x FRANCE it + α 7 IP x FAIR VALUE x GERMANYit + α 8 IP x FAIR VALUE x SWEDEN it +
+ α 9 IP x FAIR VALUE x UK it + α10 LIABILITIESit + α11 NET INCOME it + ε it

Coef. Std. Error t-statistics p-value Adj. R2

C -0.00 0.02 -0.00 0.99 0.886
FRANCE -0.26 0.07 -3.48 0.00
GERMANY 0.67 0.56 1.20 0.23
SWEDEN 1.02 0.62 1.63 0.10
ASSETS 0.67 0.04 15.61 0.00
IP_COST_DISCLOSED FV 0.83 0.05 15.65 0.00
IP x FAIR VALUE x FRANCE 0.69 0.05 12.96 0.00
IP x FAIR VALUE x GERMANY 0.66 0.06 10.20 0.00
IP x FAIR VALUE x SWEDEN 0.67 0.07 9.93 0.00
IP x FAIR VALUE x UK 0.65 0.04 18.26 0.00
LIABILITIES -0.60 0.06 -10.74 0.00
NET INCOME 1.13 0.14 7.80 0.00

Panel B: Test of coefficients equality results

Restriction Wald test p-value

α6 = α7 0.356 0.551
α 6 = α8 0.177 0.674
α 6 = α9 1.118 0.290
α 7 = α8 0.009 0.926
α 7 = α9 0.049 0.824
α8 = α 9 0.089 0.766

PRICE = share price as of three months after fiscal year-end.

FRANCE = Dummy variable that assumes 1 when the firm’s country is France and 0 otherwise.
GERMANY = Dummy variable that assumes 1 when the firm’s country is Germany and 0 otherwise.
SWEDEN = Dummy variable that assumes 1 when the firm’s country is Sweden and 0 otherwise.
UK = Dummy variable that assumes 1 when the firm’s country is UK and 0 otherwise.
ASSETS = Total assets excluding recognized amount of investment property.
LIABILITIES = Total liabilities.
NET INCOME = Net operating income.
IP_ COST_DISCLOSED FV = disclosed fair value of investment property accounted for under the cost model.
IP = recognized amount of investment property.
FAIR VALUE = Dummy variable that assumes 1 when the firm uses the fair value model and 0 otherwise.
All variables are deflated by the number of shares outstanding.
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