Value-relevance of reported changes in fair values and measurement-related fair value disclosures: evidence from the Australian real estate industry

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Pinprapa Sangchan ◽  
Md. Borhan Uddin Bhuiyan ◽  
Ahsan Habib
Keyword(s):  
Real Estate ◽  
Stock Returns ◽  
Financial Reporting ◽  
Value Relevance ◽  
Research Question ◽  
Fair Value ◽  
Real Estate Industry ◽  
Content Type ◽  
The Real Estate ◽  
Financial Reporting Standards

PurposeThe paper aims to investigate the value-relevance of changes in fair values of investment property reported under International Accounting Standards (IAS) 40 and International Financial Reporting Standards (IFRS) 13.Design/methodology/approachMultivariate regression models are used to regress cumulative market-adjusted stock returns of real estate firms on changes in fair values, along with control variables and corporate governance variables, in order to examine the research question.FindingsUsing hand-collected data from the Australian Real Estate Industry (AREI), the authors find that changes in fair values of investment property are value-relevant for equity investors. The authors further find that using unobservable inputs in an active market (Level 3 inputs) does not diminish the information content of fair values. The authors document that properties valued exclusively by directors have a significantly reduced value-relevance, whereas property valuations made collectively by both directors and independent valuers have superior value-relevance, possibly owing to the combination of inside knowledge and externally imposed monitoring. Collectively, the findings suggest that in the real estate industry, where unobservable inputs are commonly used to determine fair values of properties, the fair values determined subjectively are perceived to be sufficiently informative and relevant.Research limitations/implicationsThe authors' findings have important implications for accounting standard-setters in considering whether an external valuation should be required and whether the extensive measurement-related fair value disclosure requirements are useful.Originality/valueThe study extends previous archival evidence and complements prior commentaries on experimental and analytical work in the Australian regulatory environment.

scholarly journals International Real Estate Review

2012 ◽  
Vol 15 (3) ◽  
pp. 347-372
Author(s):  
Robert Edelstein ◽  
◽  
Steve Fortin ◽  
Desmond Tsang ◽  
◽  
...  
Keyword(s):  
Real Estate ◽  
Financial Reporting ◽  
Financial Statements ◽  
Fair Value ◽  
Real Estate Industry ◽  
The Real Estate ◽  
Reporting Practices ◽  
Financial Reporting Standards ◽  
Market Values ◽  
Alternative Metrics

The adoption of the new International Financial Reporting Standards (IFRS), by allowing the option of fair value accounting for real estate investment properties, has dramatically altered the landscape of financial reporting for real estate firms worldwide. In this exploratory study, by examining the financial statements and disclosures of 45 international real estate firms, we demonstrate that the implementation of IFRS has affected financial reporting practices in the real estate industry. We find that under the IFRS, companies place emphasis on market asset valuations, vis-a-vis alternative metrics for current performance. We also find that most real estate firms in our sample choose to report fair values for investment properties in their financial statements rather than the notes to the financial statements. Finally, there is a wide variation in firm disclosures with regards to the determinants of fair market values.

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

2020 ◽  
Vol 33 (6) ◽  
pp. 729-747
Author(s):  
Pinprapa Sangchan ◽  
Haiyan Jiang ◽  
Md. Borhan Uddin Bhuiyan
Keyword(s):  
Real Estate ◽  
Financial Reporting ◽  
Fair Value ◽  
Cost Of Debt ◽  
Content Type ◽  
The Real ◽  
The Real Estate ◽  
Fair Value Measurement ◽  
The Cost ◽  
Value Measurement

Purpose This paper aims to examine the information content of changes in fair values of investment property reported under international accounting standards (IAS) 40 and International Financial Reporting Standards (IFRS) 13 to debtholders. This study further examines the effect of fair value hierarchy inputs, valuer types and the quality of fair value measurement-related disclosure on the information usefulness of changes in fair value. Design/methodology/approach This paper performs a panel regression on the cost of debt capital and changes in fair value of investment properties, and fair value measurement features using data covering periods 2007–2015 from Australian real estate companies. Findings The findings suggest that changes in fair value of investment property are informative about the real estate firm’s future cash flow to debtholders. Also, the findings show that the use of unobservable inputs in an active market (Level 3 inputs) and Level 2 has no different impacts on the cost of debts. Also, this paper documents that employing the directors solely in valuation may lead to a higher cost of debts. Furthermore, this paper reports that an extensive fair value disclosure appears no additional value in the debt decision. Originality/value Collectively, the findings indicate that although the use of unobservable inputs is common in the real estate sector, information on the changes of the fair value of investment properties are informative to debtholders. The findings have important implications for accounting standard setters to consider revisiting the IAS 40 and IFRS 13 on whether the independent valuation should be required and whether the extensive disclosure requirement is worthwhile.

Brokerage fee, ownership expropriation and earnings management of Malaysian property companies

2018 ◽  
Vol 36 (4) ◽  
pp. 461-482 ◽  
Author(s):  
Lik Jing Ung ◽  
Rayenda Khresna Brahmana ◽  
Chin-Hong Puah
Keyword(s):  
Real Estate ◽  
Earnings Management ◽  
Stock Exchange ◽  
Real Estate Industry ◽  
Kuala Lumpur ◽  
Probit Regression ◽  
Content Type ◽  
The Real Estate ◽  
Report Data ◽  
The Relationship

Purpose The purpose of this paper is to investigate whether real estate companies manipulate their earnings through the brokerage fee across ownership expropriation or not. Design/methodology/approach This study considers Kuala Lumpur Stock Exchange listed real estate firms to investigate how the brokerage fee in the real estate industry might affect the earnings management of firms across its ownership expropriation. Using annual report data, the authors investigate the associations over a panel for the period 2008−2012. Robust panel regression is used to divulge the probability values with reference by probit regression. Findings Overall, the results show that high brokerage fees would drive more events of earnings management and that, generally, the ownership concentration among Malaysian real estate firms significantly affects the earnings management of the firms. Practical implications This study shows that firm profitability and brokerage fees enhance the probability of firm’s earnings management. A low brokerage fee would reflect low revenue to the company. Therefore, management would opt to manipulate earnings in order to overstate earnings, which garners more interest from investors. Originality/value Real estate values in Malaysia have climbed steadily over the years due to a combination of reasons giving companies a higher brokerage fee. Earnings management has become a big issue for property investors. The study demonstrates the relationship between earnings management and brokerage fee across ownership expropriation which can be considered by shareholders in their own strategic planning and investors in their own investing.

The role of investment property appraisal in European real estate companies

2020 ◽  
Vol 13 (1) ◽  
pp. 105-122
Author(s):  
Juha Mäki
Keyword(s):  
European Union ◽  
Real Estate ◽  
Design Methodology ◽  
Annual Reports ◽  
Real Estate Industry ◽  
Publicly Traded ◽  
Content Type ◽  
The Real Estate ◽  
Practical Implications

Purpose This paper aims to examine the connection between appraisals of investment properties and earnings properties in companies from two perspectives: what kinds of companies employ the most reputable appraisers and how appraisers produce estimations. Design/methodology/approach The research uses annual reports of European Union (EU) publicly traded real estate companies and examines the period 2007-2016. Findings The contribution of this study lies in establishing that some indicators and features of real estate companies affect the choice of appraiser and also in illustrating differences in the results of property valuations. In short, smaller companies with weaker performance are less willing to use external valuation, and external appraisers produce more conservative estimations for investment properties. Practical implications The research produces beneficial information for investors and other stakeholders interested in the real estate industry. Originality/value This is the first novel study to examine the link between appraisals of investment properties and earnings properties in companies in detail.

Using arguments and myths to lobby over controversial accounting issues: evidence from Japan

2020 ◽  
Vol 32 (3) ◽  
pp. 355-390
Author(s):  
Noriyuki Tsunogaya ◽  
Andreas Hellmann
Keyword(s):  
Financial Reporting ◽  
Financial Services ◽  
Accounting Standards ◽  
Fair Value ◽  
Network Effect ◽  
International Accounting Standards ◽  
Content Type ◽  
Generally Accepted Accounting Principles ◽  
Financial Reporting Standards ◽  
Stakeholder Groups

Purpose This study aims to examine the (overt) arguments and (covert) myths the Business Accounting Council (BAC) members have used to lobby over controversial accounting issues, such as the application of fair value accounting (FVA) and the adoption of International Financial Reporting Standards (IFRS) in Japan. Design/methodology/approach The authors used a content analysis to examine 85 statements included in multiperiod BAC meeting minutes and 68 articles prepared by International Accounting Standards Board (IASB) representatives from Japan. Findings The results reveal that together with the arguments, myths were created and amplified by opponents of FVA and the Financial Services Agency to hide the latter’s strong regulatory power. They created these myths, using covert stories of the importance of manufacturing activities and tax accounting (for small- and medium-sized enterprises [SMEs]), to oppose mandatory IFRS adoption in Japan and, thus, to maintain vested rights in preparing the Japanese generally accepted accounting principles and Japanese accounting standards for SMEs. Originality/value First, this study contributes to the lobbying literature by focusing on the coalition (network) effect of influential stakeholder groups. Second, although lobbying activities have been investigated mostly using comment letters, this study reviews multiperiod BAC meeting minutes and articles prepared by IASB representatives from Japan. Third, the study examines both overt arguments and covert myths, both of which are important in unmasking the fundamental structures of power within influential organizations, such as government agencies and standard-setters.

Artificial intelligence and real estate - not just an evolution, a real game changer!

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Marcelo Cajias
Keyword(s):  
Artificial Intelligence ◽  
Real Estate ◽  
New Technologies ◽  
Current Status ◽  
Real Estate Industry ◽  
Expiry Date ◽  
Content Type ◽  
The Real ◽  
The Real Estate ◽  
Analyse Data

PurposeDigitalisation and AI are the most intensively discussed topics in the real estate industry. The subject aims at increasing the efficiency of existing processes and the institutional side of the industry is really interested. And in some ways, this is a breakthrough. This article elaborates on the current status quo and future path of the industry.Design/methodology/approachThe real estate industry is evolving, and parts of the business are increasingly being conquered by “proptechs” and “fintechs”. They have come into real estate to stay not because they discovered inefficiencies in the way one manages and does business with real estate, but because they come with an arsenal of new technologies that can change the whole game. The article discusses a path for changing the game in real estate.Findings“location, location, location” has now evolved to “data, data, data”. However, there is one essential aspect that must be considered before the latter can become the real value creator: the ability of market players to analyse data. And this does not mean being an excellent Excel user. The near future sees a solution called Explainable Artificial Intelligence (XAI) meaning that the econometric world constructed decades ago has an expiry date.Originality/valueOne needs to delete two myths from their mind: data quantity is proportional to accurate insights and that bringing your data to a cloud will deliver you with all the insights your business needs almost immediately.

scholarly journals Impacts of digitization on real estate sector jobs

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Daniel Piazolo ◽  
Utku Cem Dogan
Keyword(s):  
Real Estate ◽  
Weighted Average ◽  
Real Estate Market ◽  
Real Estate Industry ◽  
Content Type ◽  
The Real ◽  
The Real Estate ◽  
Employment Agency ◽  
Real Estate Sector ◽  
Substitution Probability

PurposePrevious research on automation and job disruption is only marginally related to the real estate industry and its characteristics. This study investigates the effects of digitization on jobs in German real estate sector, in order to assess the proportion of jobs threatened to be replaced by automation. Since Germany is the largest EU economy insights for the German real estate market allow a first approximation for Europe.Design/methodology/approachAn extensive database of the German Federal Employment Agency containing job definitions and occupation titles is matched with real estate criteria to create a subset with the relevant real estate occupations. This data is combined with a database of the German Institute of Employment Research reflecting to what extent tasks within jobs can be automated by current technical capabilities.FindingsFor the 286 identified occupations within the real estate sector a weighted average of 47 percent substitution probability through current technological capabilities is derived for tasks within the examined occupations.Practical implicationsThis contribution indicates the extent of the structural change the real estate sector has to face due to digitization: One out of two real estate jobs will have to be re-created.Originality/valueThis research quantifies the magnitude of the job killer aspect of digitization in the real estate sector.

Is the MD&A of US REITs informative? A textual sentiment study

2020 ◽  
Vol 38 (3) ◽  
pp. 181-201
Author(s):  
Marina Koelbl
Keyword(s):  
Firm Performance ◽  
Real Estate ◽  
Fixed Effects ◽  
Textual Analysis ◽  
Real Estate Industry ◽  
Content Type ◽  
The Real Estate ◽  
Domain Specific ◽  
Panel Fixed Effects ◽  
Fixed Effects Regression

PurposeThis study examines whether language disclosed in the Management Discussion and Analysis (MD&A) of US Real Estate Investment Trusts (REITs) provides signals regarding future firm performance and thus generates a market response.Design/methodology/approachThis research conducts textual analysis on a sample of approximately 6,500 MD&As of US REITs filed by the SEC between 2003 and 2018. Specifically, the Loughran and Mcdonald (2011) financial dictionary, and a custom dictionary for the real estate industry created by Ruscheinsky et al. (2018), are employed to determine the inherent sentiment, that is, the level of pessimistic or optimistic language for each filing. Thereafter, a panel fixed-effects regression enables investigating the relationship between sentiment and future firm performance, as well as the markets’ reaction.FindingsThe empirical results suggest that higher levels of pessimistic (optimistic) language in the MD&A predict lower (higher) future firm performance. Hereby, the use of a domain-specific real estate dictionary, namely that developed by Ruscheinsky et al. (2018) leads to superior results. Corresponding to the notion that the human psyche is affected more strongly by negative than positive news (Rozin and Royzman, 2001), the market responds solely to pessimistic language in the MD&A.Practical implicationsThe results suggest that the market can benefit from textual analysis, as investigating the language in the MD&A reduces information asymmetries between US REIT managers and investors.Originality/valueThis is the first study to analyze exclusively US REITs, whether language in the MD&A is predictive of future firm performance and whether the market responds to textual sentiment.

How Did COVID-19 Affect the Chinese Real Estate Stock Market: An Empirical Research

2021 ◽  
Vol 9 (4) ◽  
pp. 244
Author(s):  
Lei Hsu
Keyword(s):  
Real Estate ◽  
Stock Returns ◽  
Abnormal Returns ◽  
Good News ◽  
Real Estate Industry ◽  
Total Risk ◽  
The Real Estate ◽  
Before And After ◽  
Daily Stock Returns ◽  
Real Estate Company

<p>COVID-19 has brought disruptions to various industries in China. The real estate industry can’t remain immune from the shock as well, which can be presented by the performance of real estate stocks. This study investigates the effects of COVID-19 on the Chinese real estate stocks. Statistical methods, such as OLS regression, are used to explore the effects of new cases, new deaths, new recoveries, bad and good news about COVID-19 of provinces where the headquarters of the sample companies lie on the daily stock returns as well as the changes of volatilities before and after COVID-19. Event study is employed to discover the effects of important events during COVID-19. Results suggest that positive information about COVID-19 significantly increased daily stock returns of the listed real estate company in that province. Total risk and idiosyncratic risk of real estate stocks have increased significantly since COVID-19, while systematic risk has decreased significantly. Among the crucial events during the pandemic, the lockdown of Wuhan significantly caused negative abnormal returns for real estate stocks.</p>

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