Do measurement-related fair value disclosures affect information asymmetry?

Skrålan Vergauwe and Ann Gaeremynck

Accounting and Business Research, 2019, vol. 49, issue 1, 68-94

Abstract: Using a sample of European real estate firms over the 2007–2010 period, this study provides some evidence that measurement-related fair value disclosures reduce information asymmetry. We find a negative association between the extent of fair value disclosures and the bid-ask spread, but no association with two additional measures of information asymmetry (zero returns and price impact). Contrary to our expectation, we fail to find evidence that firms using model estimates exclusively benefit the most from such additional disclosure. Analysing measurement errors (the absolute difference between the selling price of an asset and its fair value prior to sale), we find that firms that use model estimates exclusively and provide more measurement-related disclosures have lower errors and more accurate fair value estimates. In other words, if our lack of results is due to investors not using this additional disclosure this is to their detriment.

Date: 2019
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DOI: 10.1080/00014788.2018.1434608

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